How I Learned to Stop Worrying and Love the Inflation

Ben Bernanke set off a firestorm this week when he announced he was going to start devaluing the US dollar even more aggressively than normal.  Gold rose from $1,355 at the start of the week to close at $1,393.50 after hitting an intraday high on Friday of $1,398 (at which point we officially say “close enough” and congratulations to our Senior Analyst, Ed Bugos, who predicted gold would hit $1,400 in 2010 a year ago when it was at $1,100).

Central bankers and government officials around the world signalled their great displeasure at this radical action by the Fed and Ben Bernanke wrote an op-ed in the Washington Post yesterday to explain his “reasoning” behind entering the dollar into hyperinflation.

We’ll spare you the meat of his meandering as it was completely nonsensical, but the final paragraph of his editorial  was what really caught our eye.  Here is what he said:

The Federal Reserve cannot solve all the economy’s problems on its own. That will take time and the combined efforts of many parties, including the central bank, Congress, the administration, regulators and the private sector. But the Federal Reserve has a particular obligation to help promote increased employment and sustain price stability. Steps taken this week should help us fulfill that obligation.

So, in Ben’s world, the “problems of the economy” can only be solved by the Federal Reserve, Congress, the administration and regulators.  The last “group” he mentions is the private sector, as though they don’t play much of an important role in the economy.

Perhaps Ben is dyslexic.  He had most of the words right but he had them in the wrong order.  Here is what he should have stated:

The Federal Reserve caused all the economy’s problems on its own.  The private sector will take time and effort to recover from the problem’s caused by the central bank, Congress, the administration and regulators.

Ben plans to print up $600 billion in fresh Federal Reserve Notes and ship them out into the economy.  As a historical point of interest, in 1972, directly after the convertability of the US dollar into gold was removed by Nixon, the total US government debt was $601.26 billion – nearly the exact same amount.  In other words, Ben, today, just flicked a switch and created enough money to pay off all of the US governments debt circa 1972.

Bernanke plans to release $110 billion per month, for the next six months, into the economy.  Considering that there are about 111 million US households that is the equivalent of $1,000/month per American family in extra cash being created.

Some might ask, why doesn’t Bernanke just mail every family a cheque for $1,000 per month for the next 6 months?  That’d certainly make some people happy as they would feel instantly richer.  But the answer to this is that if he sends it out to every American citizen the effects of the inflation will be felt instantaneously and obviously.

To see how, just extrapolate the example to a much larger sum.  As example, let’s say Ben sent every family $1 million dollar cheques this month – which is something he could easily do.  Within seconds the prices of everything in the economy would go up a massive amount.  Big Macs would go from being $4 to being $4,000.  Nice cars would go from $50,000 to $50,000,000.  Houses would be selling for $1 billion.  Within days everyone would realize that they didn’t actually receive anything at all.  In fact, the chaos caused by it all would create social unrest.

But, if Ben sends out billions or trillions in a more obtuse manner it takes a little longer for that money to filter through and cause price changes.  It might not fully be computed into most prices in the economy for 1-2 years.  During this time people will forget all about QE2 and 1 to 2 years from now when prices are dramatically higher and those on fixed income or working for low wages find they cannot even afford to buy food to eat, the government and the Federal Reserve can point to all kinds of scapegoats – usually anyone but themselves, the ones who caused the inflation.

You see, 98% of people still don’t have any idea how the financial system works – and the government run public schools do their best to keep them ignorant and in the dark.  And so, this game keeps getting played and the result of all this inflation is a constant destruction of wealth as millions of people make poor investment decisions based on faulty price information.

At this point there is really only one thing that a sane, rational person can do and that is to sell their dollars and buy anything of real value – gold, silver, oil, uranium, agriculture.

What Bernanke did this week was fire off the first real warning shot that the end of this fiat currency system is drawing very near.  Ignore the warning at your own risk.

Here at The Dollar Vigilante, our community of dollar crash survivors have been mounting massive gains by being ahead of the crowd (98% of which still do not realize what is happening).

Just look at this post on our subscriber-only discussion forum from Heiko S:

Hopefully if Helicopter Ben stays course, I can retire long before I anticipated. I love that man, my portfolio gained 10% just today. I would have never thought it be so rewarding to invest in the incompetence of an idiot.

We are currently working on a Special Report going out to all basic and full subscribers (Subscribe today, it’s only $15 (Basic) or $25 (Full with specific stock recommendations) with no obligation!) this weekend entitled, “How to Own Gold”.  It will detail the best strategies and places to buy gold bullion and is must-have information in today’s day and age where people like Ben Bernanke can destroy a currency by a flick of a switch.

Have a great weekend,

Jeff Berwick

Chief Editor