Deflation Vs. Inflation Continues
Stocks were flat all day except at the end, and they jumped 410 points on news that the government is thinking about creating an entity to take over bad bank’s debts. More delirium.
Bonds moved lower (higher interest rates slightly) on the stock market news.
The Dollar, oil and gasoline moved sideways.
Gold had another massive jump today of $47. With $70 yesterday, that is $117 increase in the price in two days. I now believe that gold could be overpriced in the near term – and I don’t recommend purchase of gold right now. However, the thinking for an increase in gold is absolutely correct. The US Government is inflating as fast as it can, and making the dollar more worthless – so buying gold makes sense from that perspective.
In the news today….
The US Government is thinking about creating an entity like the Resolution Trust Corp (the RTC was created during the savings and loan meltdown) that would take all the bad bank debt and deal with it. Think about this a little. If this entity takes over bad housing loans, they can just sell off those houses at fire sale prices - just like the RTC did. That will continue to suppress housing prices and make our economic meltdown worse. But, there is much more wrong with banks than just bad mortgages. There are just plain debts owed. Where does the money come for paying these – it comes from you. Where does the government get all its money? It just creates fiat money – makes it look real by selling bonds to cover the new money – and increases the interest we owe on our debt – which is HUGE and growing. Where does the interest come from to pay the debt? From you, in the form of taxes. YOU just bailed out the banks.
However, is this all bad? The government could let the entire world’s financial system meltdown – and I can assure you that you wouldn’t like that to happen. If you tried to get money from an ATM, it just wouldn’t work any more. The government cannot condone chaos. What I’m trying to say is – the government is trying to do the right thing. However, what they are doing will have unintended consequences elsewhere – and you will be paying for it in the future.
The FED loaned out $180B today. That is the biggest push of money into the money markets – EVER. They gave it to US banks, and key central banks around the world. The credit crisis is here, and is getting worse. As these institutions meltdown – the world is losing its capital – and banks are afraid to loan anything out to anybody. Who can they trust? Nobody knows if there are any other big shoes to drop. Maybe. So, the FED can’t allow banks to stop lending, so it’s making money much more plentiful. We are living in a MAJOR DEFLATION right now, and the FED is trying to counter it by INFLATING. This is just another way of saying that we are having a credit liquidity crisis, and the FED is providing liquidity. Which way of saying it is more meaningful to you? When you read the papers, or hear the news, think about the words being used – are they trying to hide the truth from you?
Here are Today’s numbers:
Dow Jones 30 Industrial – 11,019 (up 410 points)
10 Year Treasury Bond – 3.44% (up 0.03%)
Euro – $1.4350
Gold – $897 (up $47) – near $900, I think gold could be overpriced in the near term. This was an amazing run up.
Oil – $97.88 (up $0.72)
Gasoline – $2.48 (up $0.02)