Danger ahead: money growth soars

U.S. consumer prices and core inflation, as tracked and calculated by the government’s Bureau of Labor Statistics, both took an unnerving jump in January. The CPI rose 0.2%, down from December`s 0.4% rise but double Wall Street`s expected 0.1% increase. Meanwhile, “core” inflation, which excludes food and energy prices (because they tend to fluctuate wildly), increased 0.3%, an amount equal to the total rise over the past three months.

No doubt these revelations will initiate a flurry of activity on Wall Street, as economists expected a 0.2% rise in core inflation. (You remember what economists are, right? Those are the people, who, if laid end to end, would point in different directions). The yield on the benchmark 10-year note rose 4 basis points to 4.71% at 9:20 a.m. this morning in New York. And, thanks to the belief that inflation will force the Federal Reserve to engineer even higher interest rates, thereby enticing bond holders to prefer US bonds over other currencies, the dollar advanced against the euro and extended a rally versus the yen.

Federal Reserve Chairman Ben S. Bernanke has been telling us that inflation remains the central bank's primary concern. "If inflation becomes higher for some reason, then the Federal Reserve would have to respond to it,'' he said in response to questions from House Financial Services Committee Chairman Barney Frank. But for now, all is rosy, he said. Last week he told lawmakers that next year he expects lower prices for oil, commodities and rent to push down the inflation gauge to within his comfort zone. The gauge has been at or above Bernanke's "comfort'' zone of 1%-2% for almost three years.

The promises that price inflation will abate in the future are the stock-in-trade of Fed chairmen, since they must not frighten people. The only thing that holds up the value of the currency is public confidence that it will have value in the future, so damage that confidence and instantaneous collapse occurs. Bernanke may temporarily instill confidence by his soothing remarks, but what is the underlying cause of price inflation?

Simple. Price inflation is caused by monetary inflation. When money is created faster than real goods are produced, money falls in value. Period. Considering the current rate of money growth, that truth should cause panic on Wall Street, for sure, as revealed by the astounding Federal Reserve figures released last Thursday. Here are the rates of growth in the M2 money supply over the past 3 months, 6 months and 12 months:

 3 Months from Oct. 2006 TO Jan. 2007-----8.4%

 6 Months from July 2006 TO Jan. 2007-----7.2%

 12 Months from Jan. 2006 TO Jan. 2007----5.5%

Bernanke is pretending to be concerned about a 0.3% increase in consumer prices, even as the Fed shovels paper money into the furnace, causing a blaze that must inevitably result in a dramatic drop in the value of the US dollar.

It’s time to batten your financial hatches. Before your dollars lose even more purchasing power, hedge by taking positions in real goods. Gold, silver, industrial commodities, energy products, and the companies that produce them. Money is wildly overvalued. Now’s the time to convert it into tangible wealth. If you aren't a member already, join the Sovereign Society today. We'll show you the path to safety and profits.