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Across America, citizens distrust Washington policymakers because their legislative bills are unreadable and their stated programs often mask hidden agendas.
Early this month Federal Reserve Chairman Bernanke rolled out a second installment of a monetary policy he called "quantitative easing" â?? dubbed QE2 â?? for the ostensible purpose of stimulating the economy, raising stock prices and lowering interest rates.
In fact, QE2 looks like "Fed speak" for monetizing the nation's growing debt â?? printing new money to finance deficit spending.
Chairman Bernanke also downplays evidence that 12 months of a 1% Federal funds rate in 2003-2004 contributed to the housing bubble and subsequent collapse. Now, after maintaining a 0% Federal funds rate for nearly two years, he shows no inclination to raise short-term interest rates.
Beware Of Inflation
Mr. Bernanke speaks of the threat of deflation, but gives little heed to signals from commodity and currency prices, which are reliable indicators of inflation.
It is not just oil prices approaching $90 a barrel and new highs in precious metals that are clear warning signs of a new inflating bubble.
It is also a broad basket of commodities that includes copper, rubber, wheat, oats, pork, coffee, sugar and cotton â?? all of which are up over 50% in the past 12 months â?? that is sounding the inflation alarm.
How can it be otherwise? When manufacturers' costs rise, which is already reflected in significantly higher material inputs and producer prices, inflation of consumer prices cannot be far behind.
And how can prices not rise when the U.S. imports more than it exports while Washington pushes the U.S. dollar lower against foreign currencies?
The inflation and devaluation that will drive interest rates higher to compensate for lost dollar value have negative implications for the American consumer in terms of wealth and purchasing power erosion.
But the more serious consequences from the Fed's pursuit of debt monetization and currency printing, the essence of QE2, is moving the country ever closer to an insolvency crisis â?? one that could destroy the dollar and bring global financial chaos.
A shocking thought for sure, but here's how it could unfold.
When investors conclude that inflation and devaluation make holding U.S. Treasury debt unattractive, they will demand higher offsetting coupon rates.
At the present time, the blended cost of the publicly held U.S. debt (some $9.14 trillion) is less than 2.5% annually, the lowest in over 50 years.
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The majority of individual stocks that are the real market leaders are also part of a leading industry group or sector.
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