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Greg Weldon - The Fed is Hoping to Avoid a Nightmare

With gold trading near the $1,720 level, today King World News was given exclusive permission to share some of Greg Weldon’s work with our global readers. Greg is the founder of Weldon Financial and he has a following of some of the wealthiest investors in the world including individuals, institutions and financial firms. Here is a portion of what Greg has been sharing with his clients: “Of interest is the segue to be made from the Personal Income data, to the US Commercial Bank lending data, with a high degree of positive correlation between the two, as evidenced in the long-term monthly overlay chart on display below. We compare DPI (black line), Total US Commercial Loans Outstanding (red line) ... and ... the price of Gold (orange line).”

Greg Weldon continues:

“First we focus on the upside leadership in Income growth for most of the last three-plus-decades, at least until the post 2000-01 crisis recovery period, which was defined by reckless bank lending linked to housing, which drove growth in Total Bank Loans to a rate greater than Income growth, in 2007-08, precipitating a financial crisis and near-market melt-down.

Moreover, reckless credit expansion (relative to income) generated anxiety as it relates to the health of the banking system, and, raised questions as to how, exactly, the Fed is supposed to stimulate the real economy, when lending is constrained by the fact that income growth has not been restored....

Continue reading the Greg Weldon piece below...

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“The anxiety surrounding the US financial sector is high on the list of things that have Gold on the rise, as it continues to react to the imbalance in the US banking fundamental, as it did in 1979-81, when loan growth last outpaced growth in Disposable Income.

Without growth in wage derived Income ... there is no growth in lending. Without wage and/or credit growth ... there is no growth in consumption.

And, if the Fed were to pump the dollar printing press, again, it would only serve to exacerbate the rise in Gold and the Consumer Price Index, which, in turn, would put more downside pressure on 'real' wages.

This is a major conundrum for the Fed, going forward, given that job growth remains far below the level needed to match the expansion in the labor pool, let alone enough to stimulate a sustainable rise in wage income.

The Fed is not daydreaming ... they are hoping to avoid a nightmare.”

Weldon also added: “Global Central Banks are tilted more towards easing in monetary policies, than they were three-months ago, particularly in the case of Europe, where a guitar solo by the ECB brought the crowd to its feet, amid the disbursement of cheap cash, and a guaranteed positive carry for three years.

Asian Central Banks that were recently raising official short-term interest rates, are now either cutting them, or are expected to cut them. Interbank rates have reversed to the downside in nearly every country in the world, led by a decline in EUR LIBOR.

The markets are merely ... ‘going where the wind blows’ ... and right now, the monetary wind has stiffened, in the direction of 'easier' monetary policy.”

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Eric King

KingWorldNews.com

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