Saturday, September 25, 2010

The scoundrels resort again to the last refuge - inflation

Fed head Ben Bernanke and the FOMC dropped a new policy bomb at their meeting this week. Now they say inflation is too low. That's the real problem. And the solution? Punch up the money supply and punch down the dollar -- or what I used to call King Dollar. No more.

In the 24 hours following the Fed announcement, gold rocketed up toward $1,300, a new record high. And the dollar plunged. It's a big vote against the central bank and its constant tinkering and fine-tuning.

The Fed actually has opened the door even wider for more money-creating, balance-sheet-expanding, Treasury-bond-buying actions at its next scheduled meeting, which will come the day after the midterm elections on Nov. 3. That's when QE2 may sail. "Quantitative easing" is what they call it. I call it dollar whack-a-mole.

Here's a currency-trader quote from The Wall Street Journal: "Quantitative easing is broadly viewed to be corrosive to a currency's value." Right on, brother. Even though Bernanke doesn't get it, the weaker dollar will rev up inflation mighty fast.

But right now, the reflation trade is king, not the dollar. Gold, commodities, some stocks and foreign currencies are the place to be.

And do we really need more inflation? And should the Fed sacrifice the value of the dollar to get it?

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