A Quick Comment Before the Health Care Bill Passes

By Michael Pento | March 19, 2010 | 4:02 PM |  2 CommentsTweet This

A quick thought on the Health Care debate. I would love to see just a little bit of honesty in the process. The truth is that I could respect the left's agenda a great deal more if they espoused a moral argument that the richest nation on earth should provide health care to all of its citizens. If the democrats could just admit that it's not about saving money or balancing our budget deficits, I think they would garner a lot more respect from all involved.

But it's the convoluted argument that they are doing it for fiscal reasons that has so many Americans turned off. The fact is that we can either have a health care system that is subject to market forces; which would continue to provide the best medical service, but only for those who can afford it. Or we can socialize medicine, which would bring the quality down for all involved, but at least allow access to everyone.

Democrats should claim to take the moral higher ground and then let the people decide whether or not they want lower quality care in exchange for bringing all on board. You just can't create a huge new entitlement program, which vastly increases the demand for health care while leaving the supply unchanged and then claim it can save money. If such an entitlement does indeed actually end up benefitting our budgetary imbalances, it will be the first such case in the history of planet earth. However, the democrats may find honesty is the best policy and also one with the least political backlash.

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Yep! He Really Said That

By Michael Pento | March 18, 2010 | 12:17 PM |  0 CommentsTweet This

I can't believe Bernanke actually thinks this thought. Not only does he think it, he actually said it out loud. Not only uttering it out loud but even said it in public. But not just in public, he actually said it in front of The House Financial Services Committee!

What did he say? When asked by Ron Paul if interest rates were held too low for too long in the beginning of this century he said, "The bottom line is that nobody really knows for sure but that the evidence is really quite mixed and I would say that even if they were too low for too long, the magnitude of the error was not big enough to account for the huge crisis we had. I think what caused the crisis was the failures of regulation...it was the weakness of the regulatory system not monetary policy that was most important here."

There you have it. I've linked it here if you have the stomach to watch. The Fed did not make a mistake in monetary policy, there only mistake was in a lack of supervision. It is both fascinating and unbelievable depressing to know that the Chairman of the Federal Reserve is one of the most deluded economists on the planet. He maintains that it was a lack of regulation and not low interest rates that caused our credit bubble. Come on Ben! If rates are kept artificially low for too long it spurs excess risk taking, encourages profligate consumption and increases debt levels. If he really believes otherwise we are doomed to repeat the same mistakes again.

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Catch Me on CNBC's 'Fast Money' Tonight

By Michael Pento | March 17, 2010 | 12:49 PM |  3 CommentsTweet This

I will be appearing on CNBC's Fast Money tonight! My segment will occur promptly at 5:00 EST. Be sure to tune in, should be fun!

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More Fed Feathers to Come in Today's Statement

By Michael Pento | March 16, 2010 | 11:45 AM |  0 CommentsTweet This

The Fed meets today for a one-day affair in order to decide how dovish their statement should be. If you listen to Bloomberg's interview with Frederic Mishkin, (former Fed Governor and member of the FOMC) you will understand their statement will be extremely dovish.

He stated the two key drivers for inflation are: consumer's expectations about future slack in the economy and future expectations about inflation. Are you laughing? The two key drivers for inflation are not easy money and credit; it's where we feel inflation is headed. Then the interviewer asked what new methods the Fed might use to measure inflation; he responded, there is nothing new here.

Therefore, the Fed is not considering using gold or the value of the dollar to measure inflation. They won't monitor money supply growth either. What they will continue to look at are things like the TIPS yield spread and the unemployment rate to get a grip on what the future rate of inflation might be.

To his credit he did say one thing encouraging. Mr. Mishkin believes that when the Fed begins to tighten---unfortunately sometime in the far distant future-the pace should not be at a gradual 25bps rate. In that we totally agree!

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Yellin Promoted at the Dole of Doves

By Michael Pento | March 15, 2010 | 3:06 PM |  0 CommentsTweet This

President Obama has nominated Janet Yellen to replace Donald Kohn as the Vice-Chairman of the Federal Reserve. Ms. Yellen served as a former assistant professor at Harvard during Bernanke's tenure as an undergraduate there and currently serves as the President of the Federal Reserve Bank of San Francisco.

But now Ms. Yellen will most likely garner a more senior position within the dole of doves at the Central Bank. Her confirmation should further cement the Phillips Curve philosophy held at the Fed, that inflation is engendered from too much prosperity and not from too much money creation. Her appointment vastly increases the potential that the Fed will concentrate even more on the unemployment rate and not enough on the inflationary forces that are already at work.

Contrary to what is promulgated by the media, the U.S. is already experiencing a moderately-high rate of inflation even though the unemployment rate in nearly 10%. That's because less people working and producing goods and services actually has a tendency to increase the rate of inflation, rather than rendering it quiescent. But thanks to a monetary base that has skyrocketed to over $2.1 trillion, Americans have had to endure higher prices along with a struggling economy. If the Fed had not exploded their balance sheet, (in order to bail out banks with a record yield spread) we would have at least enjoyed the mollifying effect falling consumer prices have on an anemic economy.

Most on Wall St. and in Washington claim that inflation is not currently a problem. But the fact is that the U.S. has a year over year inflation rate of 2.7%, according to the Bureau of Labor Statistics CPI. What's most interesting is an Inflation rate that is equal to or even less than that of the U.S., is viewed by the Chinese and the Australians as something very troubling.

The People's Bank of China believes a YOY inflation rate of 2.7% is enough to increase reserve requirements twice. The latest such move became effective February 25^th, which raised the deposit to reserve ratio to 16%.

Australia has an inflation rate that increased 2.1% YOY, .6 percentage points below that of the U.S. Yet The Reserve Bank of Australia's central banker Glenn Stevens thought the rate was high enough to raise the over-night money market rate to 4%.  Compare that to our own target rate of 0-.25%. How can it be that year over year price increases in the area of 2.5% are enough to send some foreign central bankers scrambling to quell inflation, whereas it compels our Federal Reserve to just claim that inflation remains "subdued?"

China and Australia understand how pernicious inflation can be for an economy. The Central Bankers of those countries are currently taking steps to ensure their inflation rates do not become intractable. Unfortunately for us in America, the Obama administration is instead ensuring the Fed is stacked with more doves. Our government wants to ensure money supply is growing at a fast enough pace that it can adequately finance its Treasury auctions and also devalue its existing debt. But the big winners in this country will only be the bankers and the Treasury; while the losers will be savers, those on a fixed income and the entire middle class.

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