Michael Pento continues:

“The recipient of the Nobel Prize in economics penned an article titled ‘Earth to Ben Bernanke’ on April 24th.  In it he encouraged Bernanke to embrace the idea that more money printing can save the world by writing, ‘Higher expected inflation would aid an economy.’

Bernanke addressed Krugman’s comments at last week’s FOMC press conference.  His dovish response directed towards Krugman’s commentary was, ‘The question is, does it make sense to actively seek a higher inflation rate in order to achieve a slightly faster reduction in the unemployment rate…the view of the committee is that would be very reckless.’

While it is commendable that Bernanke doesn’t publicly admit he wants to send inflation higher than it already is; the question remains as to why he believes that higher inflation can cause even the slightest reduction in unemployment....

Continue reading the Michael Pento piece below...


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“What strikes me the most is that neither the Nobel Prize winner nor the Chairman of the Federal Reserve had the sagacity to completely repudiate the idea that inflation can, in any way, reduce the unemployment rate.  Even a cursory look at the data throughout history proves that inflation is a destroyer of jobs.  All they would have to do is to look at the most salient periods of inflation that occurred over the last 40 years and see how negatively it affected the unemployment rate.

From 1971--the year Nixon broke the gold window--through 1974, the annual percentage change on the Consumer Price Index (CPI) increased from 4.4% to 11.0%.  According to Krugman and Bernanke, this should have sent the unemployment rate crashing.  However, the unemployment rate increased from 6.1% at the end of 1971 to 7.2% in 1974.  And since the unemployment rate is a lagging indicator, that figure increased even further to 8.2% in December of 1975.

In 1977 the CPI was 6.5% and it shot all the way up to 13.5% in 1980.  Just as it did in the early part of the decade, the unemployment rate increased yet again to 7.2% in 1980 and hit 10.8% by the end of 1982!   Finally, the other salient increase in the rate of inflation occurred between 1986 and 1990.  The annual percentage change of inflation in ’86 was 1.9;, that shot up to 5.4% in 1990.  The unemployment rate started that period at 6.6% and climbed to 7.3% at the end of 1991.

Therefore, I have to ask our dear Fed Chairman and Nobel Prize winner, where is the evidence that inflation causes people to find work?  In reality, it’s the exact opposite that occurs.  Inflation robs the middle class of their purchasing power and sends them onto the government dole.

Inflation also destroys investment in an economy because savers have no idea what interest rate is necessary to charge, in order to profitably lend out their money over an extended period of time.  And inflation causes tremendous economic imbalances as capital is diverted into ephemeral asset bubbles, instead of being allocated in a more viable manner.

If Krugman and Bernanke were correct in believing inflation has a positive influence on the workforce, Zimbabwe and Argentina would both be paragons of how to achieve full employment.  The truth is that a high unemployment rate is the simply the result of a weak economy.  And an economy can suffer through a recession while experiencing either inflation or deflation.

But when an economy experiences a rising rate of inflation, it always ends up with an unemployment rate that goes along for the ride.  We can only hope that central bankers in the developed world assent to that principle very soon.  However, the ECB, BOJ and Fed continue to believe a positive rate of inflation must be maintained at all costs.  If they persist with this misguided policy, this will end in disaster.

This careless and irrational thought process, on the part of the Fed and other central planners, is one of the primary reasons why investors must maintain gold in their portfolios.  Gold has proven to offer protection against reckless monetary policy for centuries and will continue to do so in the future.”

To Learn more about Michael Pento’s financial management services CLICK HERE. 

The Eric Sprott and Egon von Greyerz audio interviews are available now.  And be sure to listen to this week’s incredible line-up of other KWN interviews, which include Rich Yamarone, John Embry, Jim Sinclair and John Hathaway.  You can listen to these interviews by CLICKING HERE.

© 2012 by King World News®. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.  However, linking directly to the blog page is permitted and encouraged.

Eric King

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rewritten, or redistributed.  However, linking directly to the blog page is permitted and encouraged.

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