But That Was LAST Year
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Submitted by Gary S. Wagner on Wednesday, January 8, 2014 - 16:11.
But That Was LAST Year
There were no surprises concretely speaking in the FOMC's December minutes. The heart of the matter can be boiled down to this pithy overview that was contained therein:
"Participants generally anticipated that the improvement in labor market conditions would continue, and most had become more confident in that outlook. Against this backdrop, most participants saw a reduction in the pace of purchases as appropriate at this meeting and consistent with the committee's previous policy communications."
We wonder how the 1.3 long-term unemployed and the chronically unemployed feel about the labor market. It is absurd that 6 or even 5.5% unemployed is an acceptable number in a civilized society. The loss in productivity and the attending costs in social spending should tell us that the technocrats don't really get it. And maybe that's why our and the whole developed world's economies have been so sluggish.
We make this argument because we do want to see a modicum of inflation so gold regains its status as a hedge against rising prices. But we also make it on a commonsensical level. And on a humanitarian level. Even at the unacceptable 6% rate that means of the people listed as "in the workforce" (about 155 million) in the U.S., over 9 million will be unemployed. This does not include people who have dropped out of the workforce for myriad reasons. And it doesn't count the underemployed.
Vis a vis precious metals for starters, let's ask, "Who benefits from ultra low inflation?" We already know it doesn't benefit gold or silver bulls. And it doesn't benefit anyone working in or around the precious metals extraction and refining business. It marginally beneifts end users of gold and silver, although industrial and decorative uses are a small percentage of those metals in advanced countries.
But, macro view... who benefits from ultra low inflation rates? It benefits the debt-holding class. A dollar lent in year one is paid back every year in declining value dollars. So, the less the pay-back dollar depreciates, the better for the debt-holder. The opposite is true, naturally. The borrower gains nothing from low inflation.
Who holds debt in the world? Well, if not just the 1%-ers, it is no more really than the wealthiest 10% of the population. About 76% per cent of the wealth in the United States is owned by about 10% of the population. It is certainly in their best interest (no pun intended) to keep inflation at rock bottom.
Ask someone who is jobless - someone who worked his or her whole life, especially: "Would you rather have no job and 1.7% inflation or a decent job and 3.5% inflation?" It's a no-brainer.
If 6% unemployment is a good idea in the Fed's collective head, why not 3%? Why not 2%?
About half of the small fall in the price of gold today is due the continuing strengthening of the dollar. Oil is also on the retreat as are stock indices. Those are signs of concern over whether the Fed will taper again later this month. Note that the 10-year Treasury bond is scraping 3% on the yield. That is up more than 60% in the last 52 weeks. Higher interest rates will also squelch inflation.
So, we have a Fed cutting bond purchases and keeping rates at rock-bottom; we have a monied class holding debt on 90% (at least) of the rest of the country; we have a strengthening dollar.
Now there is a recipe for low inflation. And for stumbling precious metals prices.
As always, wishing you good trading,
Gary S. Wagner - Executive Producer