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Bernanke Kills Inflation with 2% interest rates & I've got a bridge for sale



August 10, 2008 – Comments (5) | RELATED TICKERS: GLD , DUG , FCX

If any among you thinks that the inflation story is over then you'll have a rude awakening several years down the road.  Inflation may go dormant for an extended period of time over the near term but  at the end of the day the money supply will grow to ridiculous proportions once the credit crisis subsides.

The only reason inflation is winding down right now is that bubbles are bursting and a lot of money is going to money heaven.  But when the crisis is gone you'll see banks that are over capitalized get busy loaning out money and you'll harken back to the days of $860 gold with great nastalgia. 

Over the near term who knows where the dollar, oil, etc will go but over the mid-term brace yourself my friends. 


5 Comments – Post Your Own

#1) On August 10, 2008 at 1:17 PM, eskatonic (28.51) wrote:

inflation isn't dormant, go to a supermarket.  think of what you paid 1 and 2 years ago for items vs what they are today.  also notice that 2 years ago items went on sale every few weeks so you could stock up, but now sales are much, much rarer.  if you have a really good memory, check to see if the package size has been reduced even while the cost has been going up.  in the feds infantile wisdom, food isn't part of inflation because eating is a luxury, not a necessity like a new plasma tv.

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#2) On August 10, 2008 at 5:45 PM, Turtleread (65.07) wrote:

The Federal Reserve System and its chairmen over the last 50 years have fought the boogy-man of inflation, but have neglected speaking out strongly and forcefully against budget overruns and "smoke and mirrors" accounting in our Federal government.  Thus, the actual value of what our US dollar will buy both in-country and on the export market has declined so much that some countries are considering receiving Euros, instead of U.S. Dollars for their oil.  If this happens, it's an entirely new ballgame and one the U.S. will not like!

Good comment by eskatonic. And excellent blog.

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#3) On August 10, 2008 at 7:01 PM, AnomaLee (28.77) wrote:

The reason inflation will or may remain dormant is because discount lending rates do not matter nearly as much as the fractional reserve rate or monetization.

It wouldn't matter if interest rates were zero if fractional-reserve rate were above 90%

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#4) On August 10, 2008 at 8:54 PM, MLGtrader (31.66) wrote:

Buy oil and fertilizer, it is extremely oversold because of the short rally in the dollar.

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#5) On August 14, 2008 at 10:19 PM, dexion10 (27.03) wrote:

eskatonic - good point... I used to work at a packaging company and I can gaurantee you that is the formula - inflation keeps the design team employed as packages become smaller.

 Turtleread - you nailed the bear case on the dollar.

AnomaLee  - Bingo on the fractional reserve system... being the beast that drives inflation... what a silly financial system we have.

 MLGtrader  - nice call on the fertilizer trade and oil - both happened as you predicted. 

Before I go overboard ranting about the financial system - let's all concede that this is the system that "the man" stuck us with and so it's not about to change or topple over - the only question that matters is how can we make money off the inevitable results of this financial system... that's the best that we can do for ourselves. 



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