Today one of the top economists in the world sent King World News an exclusive piece cautioning about the massive inflation present in the financial system and how destructive this is for citizens. Michael Pento, founder of Pento Portfolio Strategies, also warned the worst is yet to come as standards of living continue to be destroyed.
Pento: “Wall St. Pundits have summarily declared Ben Bernanke free from any wrongdoing regarding the negative effects derived from artificial interest rates and massive increase in the Fed’s balance sheet. Specifically, most market commentators now claim with certainty that the central bank’s unprecedented manipulation of markets has been done without creating any inflation.
This assertion is untrue in every aspect. Most importantly, the Fed’s quest to boost asset prices has been accomplished by creating credit by decree. In other words, Mr. Bernanke has purchased more than $2.5 trillion worth of MBS and Treasuries with newly manufactured money within the last five years alone….
“Therefore, there has already been $2.5 trillion worth of inflation that has been directly injected into mortgage and Treasury securities; and this number is still growing at a rate of $85 billion each month. This means the Fed is causing a tremendous amount of inflation to occur in bond prices. Banks have taken the Fed’s new money and purchased assets including equities, MBS and Treasuries, which in turn has helped push interest rates down to record lows.
Bernanke’s debt monetization has sent stock prices up 140% from their lows and also sent home prices rising 10.2% YOY on a national basis, according to the S&P/Case-Shiller Index. Inflation is very evident in stock values and has now even caused real estate prices to jump. This process of balance sheet expansion has caused the broad money supply M2 to rise 7% YOY. With real GDP growing at just 1.5-2% annual rate, the excess money growth is causing asset prices to rise.
Here is something I never would have guessed at, via Dave Wilson of Bloomberg: If you want to be hedged against the risk of a pickup in inflation, you would be better off buying houses than gold.
That’s according to Michael Hartnett, chief investment strategist at Merrill Lynch. His chart (above) shows the U.S. house-price index and the price of Gold since 1995.
According to Bloomberg, “Home prices rose 6% through the end of last year from their low in the second quarter of 2011. Q1 reading is due May 23. Prices in 20 of the largest U.S. cities increased 0.4 percent through the first two months of this year, according to the Standard & Poor’s/Case-Shiller index.”
As houses became more expensive, gold got cheaper. Its off as much as 31% from its September 2011 peak of $1,923.70 an ounce.
In the course of history, some of the great crises of the past were beyond the pale of human control. Other crises, however, were created by the very people who suffered the effects of them. The coming year could well afford a testament in how a “crisis of our own making” leads to economic destruction.
We have an excellent example of a created crisis in the ongoing fiscal cliff debate in the U.S. Congress. The debate centers on whether or not Congress intends to extend the Bush-era tax cuts or allow taxes on the middle class to rise in 2013. This is no small consideration, for if taxes are allowed to increase in the coming year it would mean almost certain death to the 4-year economic recovery. Investors would also likely suffer. Continue reading →