By Patrick A. Heller
Commentary on Precious Metals Prepared for CoinWeek.com
On March 13, The Federal Reserve issued a statement in conjunction with its periodic meeting of the Federal Open Market Committee. The first sentence reads, “Information received since the Federal Open Market Committee met in January suggests that the economy has been expanding moderately.”
Following this statement is a list of reasons supporting this assertion. Supposedly, the unemployment rate has declined notably, household spending has increased, business expenditures for fixed assets have risen, inflation has been subdued, and longer-term inflation expectations have remained stable.
However, the third paragraph of the news release contradicts the first sentence. It said, “the Committee decided today to keep the target range for the federal funds rate at 0 to ¼ percent and currently anticipates that economic conditions . . . are likely to warrant exceptionally low levels for the federal funds rate at least through 2014.”
If the economy is expanding at a moderate pace, there would be no need for the feds to keep interest rates close to zero for almost another three years (or longer). Apparently a lot of people were thrilled by the self-contradictory news release. US stock markets jumped that day, and the prices of gold and silver swooned.
If the economy is really expanding moderately, then why are so many negative news stories being ignored by the public?
On Tuesday March 13, the 10-Year Treasury debt interest rate closed at 2.102%. By March 19, the rate had jumped to 2.38%, a 13% increase in the interest rate in just six days! This interest rate is closely watched by those planning future increases in consumer prices.
If the second Greek bailout was such a success, why are officials already making plans for the third Greek bailout?
If consumer price increases were so low, why did the British government last Thursday agree with the US government to release strategic oil reserves onto the market?
If the stock market was such a good place to invest today, why has the volume of stocks traded on the New York Stock Exchange fallen about 70% from the levels of late 2008?
Last Friday, the Bureau of Labor Statistics reported that the Consumer Price Index rose 0.4% in February. The level was 2.9% higher than February 2011. The February 2012 increase represents an annual increase of 5.5%. How can the Fed continue its January claim that consumer prices will only rise by 1.4-1.8% in 2012?
Why did the CME Group, Inc. last week seek to vacate its registration of CME Clearing Europe Limited as a derivatives clearing agent from regulation by the Commodity Futures Trading Commission? Is it possible that the CME, which owns the COMEX, is trying to avoid stricter US regulations by seeking to be subject only to looser British rules?
How can unemployment be falling if the Bureau of Labor Statistics reports that there are now 5.5 million fewer job holders than there were three weeks before President Obama took office, especially when you consider that the population of the US has grown from 305.5 million to 313 million in the past three years?
Has the Federal Reserve factored into its projections the increased tax burdens in 2012 and 2013 for the new health care law? Lowering the discretionary income of people has the same effect as increasing consumer prices.
How can Federal Reserve Chair Bernanke state that there is no need for inflation of the money supply just a week after the March 6 announcement of the planned infusion of hundreds of billions of dollars into the banking system?
Mr. Bernanke, can you please answer any of these questions?
Patrick A. Heller owns Liberty Coin Service and Premier Coins & Collectibles in Lansing, Michigan and writes Liberty’s Outlook, a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at http://www.libertycoinservice.com. Other commentaries are available at Numismaster (http://www.numismaster.com under “News & Articles). His award-winning radio show “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 AM Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com.