Inflation ahead

The best news for the stock market (at least resource stocks) came from an unlikely source: 60 Minutes. Last night, they interviewed President-Elect Obama. BTW, effective January 20, I will be referring to him as "our president" not just President Obama. It's just a reminder of how the wingnuts always referred to Bush 43 as "our president" something they never did for Clinton. As Obama said, there aren't blue states and red states any more.

Once again I've gotten way off track. Back to matters at hand: Obama said he will do whatever it takes to get the economy moving again, and he's not concerned with what the budget deficit will be in the coming year OR the year after that. It sounds to me like Ben Bernanke can start revving up the helicopters right now.

Clearly Obama is correct, because if we take our medicine now the economy would spiral down into a 1930's-style deflationary depression, which must be avoided at all costs. His alternative will mean inflation; i.e. lots of inflation, but there are various ways he can fight that later. Of course you would never know this with silver trading below $10, gold below $750, and oil below $60. But that just demonstrates how rigged the commodity futures markets are.

What these low prices will accomplish is to ensure shortages in the months and years ahead by choking off exploration and even production. Mining projects are being delayed or canceled, which further reduces supply. The oil market is truly bizarre. Even OPEc can't make a profit with oil at $55, so they aren't going to give oil away at these prices. The big oil companies need at least $70 oil, and the Canadian oil sands are not economic below $85. All of the marginal projects will be shut down, and even T. Boone Pickens has delayed his wind farm project due to low natural gas prices. Unless our government finds a way to repeal the law of supply and demand, no one will produce oil and gas at a loss.

Of course the manipulation of the commodity markets has not gone unnoticed. The Saudis recently purchased $3.5 Billion worth of gold. The real kind, not the paper stuff they trade in New York and London. China now has nearly $2 trillion of foreign exchange, mostly invested in U.S. Treasury bonds. Since they need $546 billion to finance their own economic stimulus package, what better time to liquidate dollars that are as overvalued as they can get?

And one more thing: Our government denies that it has ever sold or lent out any of its gold, but it has now been confirmed that gold bars that have been traced to Fort Knox have surfaced in Dubai. What we are seeing is an enormous transfer of wealth from West to East. We are selling our assets to Asia and the Middle East at giveaway prices, while a few bullion banks (notably JP Morgan Chase) make obscene profits by manipulating the futures markets. I don't know whether it was Marx, Lenin and/or Stalin who said this, but here is the quote:

"We will hang the capitlaists, and they will sell us the rope to do it."