Today's comment is by John Pugsley, Chairman of The Sovereign Society and editor of the Sovereign Society's brand new investment service, Stealth Investor.
Dear A-Letter Reader:
Is Federal Reserve Chairman Ben Bernanke lying? Or is he just ignorant? Should he be indicted for perjury, or fired for incompetence?
The U.S. CPI figures showed the price level jumped 0.6% in April. Just prior to this, Mr. Bernanke had this to say in his statement before the Joint Economic Committee of the U.S. Congress:
"Increases in energy prices have pushed up overall consumer price inflation...continuing growth in aggregate demand in excess of increases in the economy's underlying productive capacity would likely lead to increased inflationary pressures." He went on to say, "...the risk exists that strengthening demand for final products could allow firms to pass on a greater portion of their cost increases in the future."
-Ben Bernanke, 4/26/06 |
In fact, there are only two reasons that he would make such statements. Either he is ignorant of the causes of inflation or he is intentionally misleading the public.
Inflation is the most pernicious and the most misunderstood of all the methods of economic fraud that are being directed against you. It's the most deadly of economic evils. It knows no geographical boundaries. Inflation rates are rising in Europe, in Asia, in South America, and, once again, in the United States.
Who's the culprit? Profiteering oil companies? Or SUV and Hummer drivers who are demanding so much oil? Bernanke implies that they're both responsible. Of course, it might even be China. After all, they're using more oil, too.
Bah, humbug.
If the oil companies decide to increase gasoline prices to increase profits, then they force a choice on you. When allocating your limited resources, you're forced to decide whether you value gasoline more than other items like food, clothes and entertainment. If you choose to fill up your gas guzzler instead of going to the movies, your local theater owner loses a sale. He can leave that seat empty, or lower the price until someone has the money to fill it.
On the national scale, imagine the United States has been importing a billion barrels of oil each year and has been paying $30 per barrel. Suddenly the oil companies decide to double the price of oil and we must now pay twice as much for the same amount. Once we have given oil producers the extra $30 billion, those products that we would have bought with that money will remain on the shelves, unsold. To clear the shelves, the prices of other products must fall by the amount that the oil prices have risen. Since the price level is an average of prices, the price level remains the same.
When the amount of money is constant, product prices are on a teeter-totter: as one rises, another must fall, or some products sit on the shelf. It may appear initially that the price level has increased when the oil price rises because producers of those unsold goods do not lower their prices immediately. They sit there with the unsold goods, hoping that their customers will return. It is called a business recession.
Mr. Bernanke's job is to prevent recessions, which he attempts to do by infusing fresh, new money into the system...enough to offset the rising price of oil, or any other event that siphons off purchasing power. He may call it "easing," or "accommodating," or "lowering interest rates," but in fact it is nothing more than the creation of fiat money.
Inflation is accelerating, meaning the U.S. dollar is losing purchasing power at an increasing rate. Suggesting it is caused by producers and consumers is a big lie. However, bringing Mr. Bernanke to trial for perjury is not going to happen, of course. Nor is he going to stop printing money, and the more he prints, the more he'll need to print. Therefore, your challenge is to protect yourself from the consequences.
As has been true throughout history, the most rational defense against depreciating currency is to hold tangible goods. Those of us at The Sovereign Society are looking to gold, silver and other commodities for safety. You should, too.
JOHN PUGSLEY, Chairman,
on behalf of The Sovereign Society