The Fed’s Price Deflationary Actions Could Suddenly Shift to Hyperinflation

PctChangeMy Inflationary/Deflationary Watch (IDW) shown on the left demonstrates just how impotent trillions of dollars of make-believe money has been in generating higher prices in the real economy, although it has pushed prices higher in the Wall Street gambling casino. The impotence of the Fed in generating economic growth and thus higher prices for items used in the real economy can be seen by the massive decline in commodity prices since the second half of 2011 shown in the chart above right. It’s amazing that the breakdown in my IDW has taken place despite a highly overvalued equity and Treasury market driven only by massive QE. The high in 2011 marked the end of QE2. Both QE1 and QE2 stabalized the financial markets and did result in some restoration of growth in the real economy after the nearly lethal collapse of the global financial system in 2008-09. But the performance of the equally weighted items in my IDW, shown in the chart to the right, demonstrates just how devastating QE has been on the real economy. With the exception of China, which is experiencing a depression and a very modest growth of equity prices in India, Equities, particularly those that are direct benefits of money printing in the U.S. have gained massively. But real commodity items in the index (copper, oil, silver, and the Rogers Fund items have fallen massively. Homebuilding stocks, which responds to the massively manipulated mortgage market, have risen to the upside given fraudulent price for capital. Not surprisingly, it has been the biggest winner. But Auto markets, too, have been afflicted with cheap money, which robs savers and rewards irresponsible spenders. So auto stocks (Toyota) have been the second biggest winner since the 2011 IDW peak. Unfortunately, all of this rot is now coming home to roost and so the Fed will continue to have a more and more difficult job in trying to deny the discovery of reality by the American people.

But the fact remains. THE FED CANNOT RAISE RATES WITHOUT CAUSING A MASSIVE STOCK MARKET COLLAPSE! But you can count on more manipulative word games from the Fed to keep you thinking it can, to avoid incarceration by a revolutionary republic.

But sooner or later, Pinocchio’s nose will protrude so far that the big lie will no longer be believed even by the most ignorant and gullible among us. In fact, the following article, “The Calm Before The Storm,” put out by Zero Hedge and written by Michael Snyder via the Economic Collapse blog, provides solid evidence in my view that while times are good now, we should get ready for some extremely turbulent weather. I am passing this article along to you because I think it is spot on with the truth and that in the not-too-distant future, there will be hell to pay for the transgressions of our policymakers. The only trouble is that innocent people will pay the price as much or much more perhaps than the policymakers themselves. But we must be as ready as possible for what is to come.

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.