My IDW Continues to Demonstrate Central Bank Folly

IDW-2015-07-03In January 2005 I concocted what I called then my Inflation-Deflation Watch because I wanted a sense as to whether the global economy was inflating or deflating. I wanted key commodities to measure the real economy and also wanted diverse equities that measured key components of the global economy, like housing, autos, and a cross section of global economic activity. Key commodity components chosen were copper, oil, silver, and the Rogers Raw Materials Fund, which represents a cross section of energy, base metals, and agricultural items. And with China and India now starting to grow dramatically, I wanted the economies of that part of the world represented as well.

peak change

Much as I think QE1 and QE2 were long-term disasters, setting in motion the destruction of what was left of our free market economy, they were successful in setting in motion a recovery of prices. For sure, QE resulted in horribly bad allocation of capital and it diluted the value of savings of honest, middle-class people by depriving them of true market rates of interest. Wall Street and Washington have made out like bandits. (Actually, that’s what both Wall St. and Washington are.) Not only have savers subsidized the banks by the Fed manipulating the rate of interest way below market rates, but given the virtual insolvency of the banks, the Fed has paid the banks TO NOT LEND into the real economy.

The policy of the Fed and other central banks around the world has been an unmitigated disaster. Above, you will see all the items in my IDW. Note how well financial instruments (especially U.S. stocks and U.S. Treasuries) have performed under this illicit policy. On the other hand, note how badly the commodities have performed. If central bank policies were resulting in real economic growth that would be reflected in the price of copper, oil, silver, and in the Rogers Raw Materials index. With the real economy so depressed, I believe we are on the precipice of a major equity market crash. And there is reason to believe that may also provide a turn for gold and silver.

About Jay Taylor

Jay Taylor is editor of J Taylor's Gold, Energy & Tech Stocks newsletter. His interest in the role gold has played in U.S. monetary history led him to research gold and into analyzing and investing in junior gold shares. Currently he also hosts his own one-hour weekly radio show Turning Hard Times Into Good Times,” which features high profile guests who discuss leading economic issues of our day. The show also discusses investment opportunities primarily in the precious metals mining sector. He has been a guest on CNBC, Fox, Bloomberg and BNN and many mining conferences.