Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

When Will Fed-Created Melt-Up Turn Into a Meltdown?


As the Federal Reserve buys up Treasuries, commodities and oil continue to inflate.

The following chart says it all. The Fed's aggressive Treasury monetization has been the causa proxima (90-percent correlation) to the peddle-to-the-metal Minsky Meltup in commodities. I suspected this would be the effect but confess I did not believe the Fed and government could be so irrational as to attempt it, especially with the blowback evident by year end. Though I am one of the most persistent critics of the Fed, this exceeded even my worst fears. This is what Bernanke refers to as "temporary" inflation. Nor did I anticipate the markets ignoring such clear and present danger. The transmission of this inflation disease appears to take about six months, which corresponds to the MIT price survey I have been using. It, too, now shows that inflation is in full swing.

The question now: When does the meltup switch into a full-fledged meltdown of the global economy? In spite of all warning signs that the Fed has ignored over the past few months, the switchover is now transmitting at such a rapid pace that it could happen in either one great shock or in a series. In my view, the 320 level on the CRB was more than enough to trigger the switch, and it corresponds with the first riots in Tunisia and then Egypt. If the Fed continues its purchases, we can calculate that each new $100 billion of Treasury purchased will add about 5 percent to the commodity index and $7 to oil. It takes four weeks for the Fed to purchase $100 billion in Treasuries. What a game of chicken being played out and right before our eyes! You can sense the collision, flying glass, blood, and bones at almost any moment. If the Fed desists or scales down its Treasury buying, the stark trillion dollar question becomes who will buy them?

Editor's Note: This article was originally posted on The Wall Street Examiner's Winter Watch.

Lasting through April 15, 100% of the donations made to The Ruby Peck Foundation for Children's Education will be channeled to the children of Japan as they attempt to find their footing following this natural disaster; and to kick off this drive, we'll pledge $5000 to get it started. Please do what you can, as it will add up, and thanks.
< Previous
  • 1
Next >
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

Featured Videos