Is The Fed Combatting Inflation, Deflation ... Or Desperation in Precious Metals - Interesting News

Interesting World News

Is The Fed Combatting Inflation, Deflation ... Or Desperation

November 12, 2002
Lear Financial

The twelfth time is the charm ... that's what the Fed is hoping. Unfortunately, every indicator lines up against it.

Since May of 2000, the Fed had cut interest rates eleven times, trimming the former 6.5 percent rate of eighteen months ago to a bare-bones 1.75 percent, the lowest since 1965. Not content with the way things were going after nearly a year of maintaining the rate, the Fed got out its carving knife again, slicing away another .5 percent and presenting us with an amazing 1.25.

The message the Federal Reserve is sending is unsettling, at best. One of the Fed's stated missions is to harness inflation. Yet it's looking more like the opposite economic extreme, deflation, is the main worry at the nation's money center. That's because the Fed has been virtually opening the dollar's floodgates in an effort to stimulate America.

In September for instance, the money base was up 5 full percentage points over this same time last year. October showed an even greater increase of 6.7 percent. Remember, due to 9/11, last fall was already one of the most inflationary seasons in recent memory. So a steep increase over those high levels would take some doing ... but the Fed did it.

Still, this flood of crisp new dollars, although intended to wash down to the average consumer and extinguish deflationary concerns, hasn't been doing the job. Over the past two years alone, US money supply (M3) has grown by $1.3 trillion ... even as the economy has grown by only $350 billion as measured by GDP.

Banks simply haven't been all that eager to lend money to business. That's because commercial America is nowhere near as attractive a prospect as it once was. As it is, business has struggled to get by. This is evidenced by a debt-to-asset ratio that's the highest in recent history, reflected by the mounting bad debts in US banks. In fact, the banking industry has grown so wary of lending that business loans have been declining ñ not increasing ñ for 15 months in a row now.

There's an ominous disconnect occurring somewhere between all that newly printed money and America's industrial output. Like Japan, our industrial production has slunk below its long-term trend for 18 straight months now. During most of those 18 months, the economy has been presented with eleven - and now twelve - rate cuts. Still, this normally failsafe economic stimulant has had no discernable effect on business. And, even though this latest interest rate decline of from 1.75 to 1.25 means that money is suddenly 28 percent cheaper, stocks quickly reacted with another triple-digit decline day.

Clearly, the business community is acting like an addict who no longer gets a buzz from the same dose of drugs.

Ironically, the very act of slashing rates a half point instead of a quarter can be more worrisome than encouraging. As Mitch Stapley, an investment officer from Michigan, put it: "The Federal Reserve is obviously seeing more risk of weakness than had been apparent to us." The half-point slashing has stunned investors who had anticipated a possible quarter point cut. "What they've effectively done is two moves in one meeting," said Ethan Harris, a chief economist at Lehman Bros. But, if these two-moves-in-one do anything, they leave investors worried that things are actually worse than they had suspected. "The Federal Reserve is basically saying the economy is so weak that it has to cut interest rates by a whopping half a percentage point," said Wells Fargo's chief economist, Sung Won Sohn. "And that's telling us that the economy is getting worse and not better."

Meanwhile, on the other side of the monetary fence, gold has never looked better. "The good news is that, according to Elliott Wave Theory, we are in a powerful bull market. I expect gold and gold shares to take off in a powerful advance to new highs," Clive Maund, an English technical analyst, recently observed. In addition, the internationally known Aden sisters predict "Gold is looking good on a long, medium and short-term basis."

Don Murphy, a technical analyst with Merrill Lynch speaking on CNBC said, "My view is that I like gold as an investment. I'm inclined to think that gold is making a secular low, a buy of a generation." He went on to say, "To be conservative, I'm going to say $450 to $550, but my thought is that gold could go back and challenge the levels we saw in 1980-81 at $850 an ounce."

The world seems to agree, too. Middle East demand for gold is up 30 percent, perhaps in anticipation of war with Iraq. Japanese gold demand has increased 75 percent this year, with investment demand up 150 percent. India is also seeing a great surge in demand.

To participate in this booming gold market and to reduce your anxiety over what the Fed does - and what the Fed sees ahead of us - it makes perfect sense to re-balance your portfolio with a solid component of gold. Then, at the very least, you won't have to be among the many casualties should the economy continue its downward spiral.

Link to Article Source

Universal 7 Radio | gtbroadcasting.com | GlobalEnquirer.com | Comment

FAIR USE NOTICE. Many of the stories on this site contain copyrighted material whose use has not been specifically authorized by the copyright owner. We are making this material available in its efforts to advance the understanding of environmental issues and sustainability, human rights, economic and political democracy, and issues of social justice. We believe this constitutes a 'fair use' of the copyrighted material as provided for in Section 107 of the US Copyright Law. If you wish to use such copyrighted material for purposes of your own that go beyond 'fair use'...you must obtain permission from the copyright owner. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. For more information go to: http://www.law.cornell.edu/uscode/17/107.shtml

Diana Nightingale
International speaker, author, mentor and life coach

Dr. Laffitte
Right hand man of Martin Luther King

Jennifer Hudson
Oscar and American Idol Winner

Flavor Flav
Rap Artist

Sally Jessy Raphael
TV and Radio Personality

Gary Busey

Harry G. Belafonte
American musician
actor and social activist

Robert L. Carothers
President of the University of Rhode Island

Les Brown
Motivational Speaker & Best Selling Author

Dr. Louis Turi
The World's Greatest Astrologer

LL Cool J
Party, Rap Artist

Dannion Brinkley
Autobiography "Saved by the Light"

Lucy Arnez
Actress

Don
the Forensics Expert who handled the bullet that Killed MLK

Percy Sledge
Who Wrote When a Man Loves a Woman

Bibi McGill
Beyonc�'s Lead Guitarist

Stevie Wonder

James O�Neil
Former Attorney General of RI

Richard Paul Evans
Bestselling author of the Christmas Box Miracle

National President of Phi Kappa Phi

Aretha Franklin
The Queen of Soul

George Zaharoff
International Designer

John J. Kennedy
Presidential Candidate

Jim "Supermind" Karol
The Real Life Rain Man Meets Rocky Balboa

Jane Kennedy
Actress & Miss America

Sally Jessy Raphael
TV and Radio Personality

Wayne Dyer
Bestselling author of You Will See it When You Believe it and TV personality

Brandon Bays
Bestselling Author of the book "The Journey"

Nicole Whitney
Radio Talk Show Host and Founder of News for the Soul, Rated by AOL and Google #1 Radio Talk Show on the Internet

Anne Marie Evers
Author of Your Passport to Happiness

Matthew Adams
Co-Author Chicken Soup for the Soul

Dannion Brinkley
Autobiography "Saved by the Light"

Sarah Simmons
Radio Talk Show Host and Author

Susan Crossen
Author and Radio Talk Show Host

Don Shula
Former Miami Dolphins coach with the most wins in NFL history

Bruce Sundlun
Former Governor

Palane Miedaner
Author of Coach Yourself to Success, seen on all the major television programs

Bishop Jordan
Author of The Laws of Thinking