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EXACTLY Why the U.S. Is Printing MoneyBy
Tuesday, April 12, 2011
America's central bank is printing money... to purposely create inflation.
Meanwhile in Europe, the central bank is doing the opposite... It's taking actions to prevent inflation from ever appearing.
So who's doing the right thing?
The problem is essentially the same in America and in Europe. Why – when faced with the same problem – are the U.S. and Europe pursuing opposite solutions?
I think I have the answer...
Each central bank is trying to prevent a repeat of its worst mistake in history. Let me explain...
The Great Depression was the worst economic crisis in American history. The big issue in the Great Depression was DEFLATION – falling prices. The U.S. central bank is typically given the blame for the Depression, for not fighting deflation hard enough – for not printing enough money.
Ben Bernanke, the head of our central bank, has made it his life's mission to prevent a repeat of the Great Depression. Bernanke is a student of the Depression. He will do everything in his power to prevent falling prices from happening.
Bernanke won't stop once inflation appears... because he knows a deflation "aftershock" could hit. Inflation started to rise again in the mid-1930s... then a deflation "aftershock" hit. The chart shows the story:
.gif) Bernanke believes this was the worst policy failure by the U.S. central bank. He won't let it happen again. So expect inflation to arrive at some point. And expect it to stay, to ward off a potential deflation aftershock.
The European Central Bank (the ECB) is also well aware of its greatest economic failure of all time. That was hyperinflation in the early 1920s.
.gif) Inflation in Europe just hit 2.6%, above the ECB's acceptable rate of 2%. So last week, the ECB raised interest rates. The goal was to contain inflation.
While Europe is raising interest rates to slow the risk of inflation, the U.S. is expected to keep interest rates where they are for the foreseeable future. The U.S. is also continuing its "quantitative easing program" which is essentially printing money, by another name.
So what can you do with this knowledge?
If Bernanke won't stop, you can expect more of the same... higher commodities prices (particularly precious metals) and a lower value for the U.S. dollar and U.S. government bonds.
This conclusion isn't shocking... What is shocking is just how far these trends will go if Bernanke keeps his promise to prevent deflation.
In short, in the U.S., asset prices could soar higher and the dollar and government bonds could fall lower than most anyone can imagine.
Good investing,
Steve
Further Reading:
"We're in the Bernanke Asset Bubble," Steve writes. "In this bubble, not just one thing goes up... EVERYTHING goes up." Find out how to safely maximize your profits in a market that just keeps going up, up, up here: Secrets from the Man Who Trades Bubbles.
As the dollar continues to weaken, Porter Stansberry and Braden Copeland offer a glimpse into the future. "Inflation will soar. The bond market will get wiped out. Our standard of living will plummet. Just imagine what the historians will write about the 'American Empire' in 100 years."
It doesn't look good for the greenback, but Porter and Braden offer one inflation-proof investment idea here: This Is How the "American System" Was Corrupted and Destroyed.
Market NotesOUR SMALL RESOURCE STOCK CALL WAS THE RIGHT ONE Our "moonshot alert" from December 2008 is turning out to be the right call...
During the 2008 credit crisis, small mining and energy stocks suffered one of the worst falls we've ever seen in a sector. The TSX Venture Index, a sort of "Dow Industrials of small resource stocks," fell 75% in six months.
Just after this fall, we expected a huge "funny money" government stimulus to produce a rebound in gold and silver and noted, "when gold and silver start climbing, these tiny stocks have the potential to be 'moonshots' in the next few years."
As you can see from today's chart, this index of tiny, riskier resource stocks is behaving as expected. Gold, silver, and oil are soaring... many of these small stocks have climbed 400%-600%... and the index in general has gained more than 300%. As precious metals and oil continue their long-term bull market, expect more gains like this in the coming years.
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