The Fed’s favorable failure.
December 10, 2010 – Putting gold investing in the perspective of QE2 is at best confounding. Clearly the expected results from Fed policy have failed to materialize, and more often than not they are the opposite of what the Fed had expected to achieve. At the same time the fears of those opposed to the policy have likewise not been realized. As Marcellus said, “Something is rotten in the state of Denmark.”
Actually it is rotten in many states and it is called the global economy. Simply put, global economic events have easily overpowered Fed policy. The dollar is up, not down, so no advantage in exports has been gained. Long term interest rates have started climbing, contrary to the goals of Treasury buyback. And of course, unemployment remains stubbornly high.
All things considered, however, it is just as well that Bernanke’s policy has not achieved its basic goal – to destabilize the dollar and spark “controlled” inflation. Those who survived the 1970s probably wonder why anybody would intentionally recreate that mess, but Bernanke is firmly committed to a theory that calls for just such action.
It’s called the Phillips curve, and as Steve Forbes explains in the Wall Street Journal, it states that growth must come at the expense of inflation and lower inflation must come at the cost of higher unemployment. The notion that sustainable growth can be built on the foundation of a weak currency is ridiculous, but such are the ideas born of academia and not the real world.
The Fed’s stunning lack of results begs stronger action. Unless Bernanke has a sudden reversal in philosophy, stronger action by the Fed might well create the instability he deems necessary and bring the fears of opponents into fruition. It’s time to take cover in certified gold investments.
Senior Staff Writer – Certified Gold Exchange