Fed’s Monetary Malfeasance Creating Catastrophic Bubble

by Richard Young | April 25, 2011 3:43 pm

The silent investment story of the year is the collapse of the U.S. dollar against the Swiss franc, Canadian dollar and Swedish krona. The dollar’s decline has been breathtaking, and the fault, as always, lies with the Fed.

Chairman Ben Bernanke assures gullible citizens that he is not “printing the money.” But take a gander at my chart — Adjusted Monetary Base (high-powered money) and Excess Reserves. Parabolic curve comes quickly to mind.

For the Fed chairman to B.S. the citizenry with his “we’re not printing the money” is cause for Mr. Bernanke to look for another line of work. Let me be clear: The Fed’s monetary malfeasance has caused yet another catastrophic bubble.

11 Feds Monetary Malfeasance Creating Catastrophic Bubble

Governments Distort Economic Stats

My theoretical monetary price for gold is now $11,226 per ounce. At such a price, central bank monetary reserves would be backed one-for-one by gold.

Is this a fair price for gold?

The market decides, as long as central banks are not manipulating gold’s price, which happens from time to time. Central governments worldwide are all about manipulation. China is conducting a campaign of deliberate undervaluation for its currency, and I do not believe official Japanese economic reports. Japan is too much of an export power to be dragging along at home like the government reports (pre tsunami).

Here at home, we torture the Consumer Price Index (CPI) to mask the true rate of price inflation. And I do not think much of the official unemployment rate. It masks the true rate of underemployment.

As for my monetary price of gold, it measures worldwide debasement of fiat money. When the compound growth rate of central bank currency reserves is an astonishing 13.5%, fiat money debasement is in the air — no ifs, ands or buts.

Payday Indicator at Record Low

In order to gauge the investment climate, I use my mini payday indicator, which needs no more room than the back of a postage stamp. I simply average the Dow yield and the yield on 90-day T-bills. A good norm is 4.5%. At 4.5% or above, I am generally OK with the investment climate as long as the economy is gaining momentum and interest rates are stable or declining.

Well, my payday indicator (calculated since I got into the investment industry in the early ’60s) is now at an all-time low of 1.25%. Comfortable I am not.

Goldman vs. Goldman

How about economic momentum?

The government’s massaged GDP report indicates upside momentum. Unless one is in the Bernanke-subsidized banking business or the food and beverage industry, the truth is a little different.

The consumer is tapped out and drowning under a wave of brutish mortgage payments. I have no mortgages or debts, and my holdings of liquid assets, including gold and foreign currencies, are at an all-time high.

My charts on Consumer Confidence and New Home Sales do not support a positive view on the economy. Officially, reported job growth is better in the last couple of months, but jeez, non-farm payrolls today are at about the same level as May 2009. That’s almost two years with no net gain. And the rotten employment and new home sales readings come on the heels of a mega money printing campaign at the Fed.

What happens when the press shuts down this summer, when QE2 ends, and when the Bernanke-driven Free Money Truck exits the hood?

It is an outrage that the Fed subsidizes Goldman Sachs (NYSE: GS), while Mr. and Mrs. Goldman, private citizens, hunkered down in a Boca retirement condo, are getting 4 basis points of T-bill interest on their retirement savings. Are Americans paying any attention to this appalling expropriation? No wonder gold and the Swiss franc are trading at record prices.

12 Feds Monetary Malfeasance Creating Catastrophic Bubble

13 Feds Monetary Malfeasance Creating Catastrophic Bubble

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