Michael Pento continues:

“At the same time, productivity is now falling at a 0.5% annual rate in the first quarter of 2012.  That means there will be virtually zero growth in the goods available for domestic consumption and international trade, yet the money supply continues to grow 10% YOY—a great recipe for more stagflation.  But Europe is doing even worse than the U.S., as their recession is quickly intensifying.

Their manufacturing index fell to 45.9 in April, a 34-month low and the jobless rate in the 17-nation euro area increased to 10.9% in March, which is up from 9.1% a year ago....

Continue reading the Michael Pento piece below...


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“And if you want to know the future of where the Federal Reserve is headed, all you have to do is look to the Bank of Japan.  The BOJ maintained its key policy rate at a range of zero to 0.1% at their meeting last week and eased monetary policy by expanding government bond purchases by 10 trillion yen.

They also went as far as actively pursuing inflation by purchasing 200 billion yen in equity ETFs.  Yes, now the BOJ is counterfeiting money for the sole purpose of inflating stock prices.  Ben Bernanke is most likely pining for the very same opportunity.

The perfunctory prescription offered by central bankers across the globe to rectify the economic malaise is more inflation.  But they still don’t understand the pernicious nature of massively increasing the supply of a fiat currency.

Inflation wouldn’t be such a big problem if the new money created was evenly and immediately distributed throughout the economy.  But it never is.  The wealthy and foreign creditors always get paid first and the ensuing currency collapse causes prices to surge far beyond any compensation received from income and asset price appreciation.  And the lower you go on the economic ladder, the greater the fall in the standard of living becomes.

The more significant problem for the middle class is that prices rise without a commensurate increase in assets or income to compensate.  Also, debtors don't always have a fixed interest rate attached to their liabilities.  Therefore, rising debt service expenses usually wipe out any benefits that would otherwise be derived from devaluing their debt. 

When a government chooses to default through inflation it temporarily holds the economic storm in abeyance as it rapidly intensifies just offshore.  Therefore, the resulting rise in interest rates and economic collapse are far worse once the storm arrives than if the government chooses to default by restructuring the debt.

Gold stocks are now trading as though peace, prosperity, balance budgets, and the repudiation of fiat currencies were about to break out across the globe, sending the metal back to $1,000 per ounce in the very near future.  But given the stagflation conditions in the developed world, and governments’ proclivity to use money printing in order to jump-start an economy, it may be wise to take advantage of the current discount being offered on mining shares. 

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

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