Sep 03, 2010

Never believe anything until it has been officially denied.

– Francis Claud Cockburn (1904-1981), English journalist

In my opinion, the Fed has made it clear they are going to monetize the debt so this government can keep spending money to fund programs and "spend" our way out of recession.

While the Keynesians truly believe this is a viable option, it is not. All it will do is place more debt on the government balance sheet, which apparently does not concern the Fed – especially if they are willing to monetize the debt.

One thing Helicopter Ben is good at is printing money. Expanding the Fed balance sheet to over $2 trillion and the prospects of more expansion means Ben will print in a big way. Anyone who believes he can drain $2 trillion-plus out of the system to avoid inflation, without bringing the economy to its knees, is dreaming. Raising interest rates to accomplish that would burden the government with huge increases in interest payments on the existing $13.5 trillion (and rising daily) national debt.

The Fed is in a real corner now. They have used every tool in their arsenal and now find their only option is Quantitative Easing. By holding the target rate a 0.00 – 0.25 percent and the willingness to buy Treasuries, I can see no other message they sent to the market yesterday.

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Easy money as far as the eye can see is with us until the inflation genie jumps out of the bottle.

The Fedspeak of deflation is very revealing. I, too, never believe anything the Fed or government says until they officially deny it. Commodity-price action is signaling just the opposite of deflation. Why believe what your eye observes in the day-to-day market movements when you can depend on the Fed to tell everyone the truth?

They never lie, do they? They wouldn't just say it to bolster support for their failed monetary policy, would they? Nah!

Let's open the Fed books to the public and see if Mr. Bernanke would maintain this current policy. Let's ask the banks and entities receiving this freshly printed money to open their books and then see if the DOW and the dollar would survive such transparency.

This Fed meeting will ultimately be seen as a clear signal to buy gold, and lots of it. Even Joe Terranova on CNBC, after reading and deciphering the notes of the Fed statement, bought gold this week. He stated this publicly, on the air.

Today may be one of the last opportunities to purchase gold south of $1,200. I suspect those in the know are buying gold and will continue doing so over the next few weeks. Expecting a rally in gold now is reasonable.

Keep in mind the Fed has now done everything it can do with monetary policy to stabilize the system against what Mr. Obama keeps reminding us was the "worst financial crisis since the Great Depression." Now it will take government policy to keep the recovery going – policy that creates jobs and confidence. That would entail tax reductions for corporations, individuals and investments, reduced government spending and moving toward a balance budget. Reduced regulation, fast-tracking permits for new projects, lifting moratoriums on drilling and easing EPA regulations, etc.

That ain't going to happen under current leadership.

Therefore, Ben is prepared to print – and print he will.