Michael Pento continues:

“He also promised that, ‘The Committee will continue its purchases of agency mortgage backed securities, undertake additional asset purchases, and employ its other policy tools, as appropriate, until such improvement is achieved.

In other words the Fed will continue to counterfeit money and buy everything for sale in America, if need be, until there is a substantial decline in the unemployment rate.  But there is a major problem with his plan....

Continue reading the Michael Pento piece below...


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“The unemployment rate doesn’t fall when the dollar is devalued, but the middle class is further dissolved and the inflation rate rises.

The first round of Quantitative Easing began in November of 2008.  At that time the unemployment rate in the U.S. was 6.8%.  The second round of QE began in November of 2010 and ended by July of 2011.  However, after printing a total of $2 trillion and taking interest rates to virtually zero percent, the unemployment rate had risen to 9.1%.

After four years of money printing and interest rate manipulations, the economy still lost 16k goods-producing jobs, and 368k individuals became so despondent looking for work that they dropped out of the labor force last month alone.  The unemployment rate has now been above 8% for 43 consecutive months. 

Mr. Bernanke must believe that $2 trillion dollars worth of counterfeiting isn’t quite enough, and 0% interest rates are just too high to create job growth, so he’s just going to have to do a lot more of the same.  But by undertaking QE3, the Fed is tacitly admitting that QEs 1 & 2 simply didn’t work.

Here is why the tactic of increased money printing money can never lead to economic prosperity.  The only way a nation can increase its GDP is to grow the labor force and increase the productivity of its workers.  But the only ‘tool’ a central bank has is the ability to dilute the currency’s purchasing power by creating inflation. 

Central Bank credit creation for the purpose of purchasing bank assets lowers the value of the currency and reduces the level of real interest rates.  Interest rates soon become negative in real terms and consumers lose purchasing power by holding fixed income investments.

Investors are then forced to find an alternative currency that has intrinsic value and cannot be devalued by government.  Commodities fill that role perfectly, so prices rise, sending food and energy costs much higher.  The increased cost of those non-discretionary items reduces the discretionary purchasing power of the middle class even further. 

The net effect of this is more and more of middle class incomes must be used to purchase the basics such as food and energy.  Therefore, job losses occur in the consumer discretionary portion of the economy.  The inflation created by a central bank also causes interest rates to become unstable. 

Savers cannot accurately determine the future cost of money, and investment activity declines in favor of consumption.  Without having adequate savings, investment in capital goods, like machinery and tools, wanes and the productivity of the economy slows dramatically.

The result is a chronically weak economy with anemic job growth.  This condition can be found not only in the U.S. but in Europe and Japan as well.  These stagflationary economies are the direct result of onerous government debts, which are being monetized by their central banks.

I predicted that QEs 1 & 2 would not work and I also predicted back in January that QE3 would occur in the second half of 2012.  I now predict that QE3 will fail as well, causing the unemployment rate to rise even further, along with the rate of inflation. 

In fact, I believe the unemployment rate will increase sharply over time.  That will force Mr. Bernanke to choose which mandate (full employment or stable prices) takes precedence.  I believe he will choose the former.  That means this round of quantitative counterfeiting will last as long as he is Chairman of the Fed.

The Fed has enabled Washington to amass $6 trillion of new debt since the Great Recession began in December of 2007.  They have not only prevented an economic recovery from occurring but and have catapulted the U.S. towards a currency and bond market crisis in the next few years.

Therefore, I now predict that Chairman Bernanke’s actions will send gold to an all-time high, both in nominal and real terms, in the next few quarters, as the developed world’s economies sink even further into the stagflationary abyss.”

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

KWN has released the outstanding interview with Egon von Greyerz and you can listen to it by CLICKING HERE.

The interviews with Bill Fleckenstein, Egon von Greyerz, Felix Zulauf, Rob Arnott, Michael Pento, Gerald Celente, James Dines and Marc Faber are available now.  Also, be sure to listen to last week’s line-up of other KWN interviews which included James Turk, Art Cashin, Egon von Greyerz, and Sean Boyd by CLICKING HERE.

Eric King

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