The Great Depression Online

Great Depression Online Archive Issue:

Betting on the Federal Reserve

Great Depression Online
Long Beach, CA
September 24, 2010

Inside This Issue You Will Discover…

*** The Recession’s Over?
*** More Money Printing
*** Betting on the Federal Reserve
*** And More

The Recession’s Over?

If you didn’t already know…the recession’s over.  In fact, on Monday the National Bureau of Economic Research announced the recession’s been over since June 2009 – over a year ago.

“Feeling better now?” asks Jeannine Aversa over at AP.

“It may be over, but you won’t be hearing any cheers from the millions of Americans who are struggling to find a job.  Or are worried about the ones they have.  Or have lost their homes. Or are behind on the mortgage.”

~~~~~~Exclusive Interview~~~~~~

As the world sinks deeper into what he calls the Greater Depression, Casey Research Chairman Doug Casey sees default on the U.S. national debt as inevitable—albeit probably in the guise of currency destruction.  He anticipates further contraction in real estate, particularly on the commercial front. As long as stocks remain overpriced, he'll shy away from equities—except perhaps in favored sectors, such as gold.  In fact, in this exclusive interview with The Gold Report, Doug posits that gold juniors might “go up by an order of magnitude or more, even while most other stocks are going down.”

Read It Here 


Moreover, the prospects of a swift, robust, recovery have faded faster than daylight from a wintertime sunset.

The bottom line is, while the government statistician’s determined the recession is “officially” over, employment and consumer spending are lethargic, housing is still swimming in excess inventory – prices won’t come back any time soon – and state and local governments’ are broke.

For reasons like these, among others, we ain’t buying the NBER’s claims.  And Federal Reserve Chairman Ben Bernanke’s not buying them either…

More Money Printing

“The committee will continue to monitor the economic outlook and financial developments and is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate,” the Federal Open Market Committee said in a statement on Tuesday.

Translation: The economy’s still in the tank; we need to print more money.

Of course, following the FOMC statement gold spiked to nearly $1,300 per ounce, the dollar fell, and yields on two-year treasuries hit a record low.  Actions like these do not suggest the economy has made it back to level ground.  Neither does a federal funds rate of 0 – 0.25 percent.

Some market commentators gaze out at the economic landscape and see nothing but deflation for years to come.  But here at the GDO we’re not ready to give up on our affable Fed Chairman.  For with enough money printing, the Federal Reserve will finally get what they want – inflation. 

Will it be the kind of inflation everyone likes…like rising stock or house prices?  Or will it be the kind of inflation that everyone despises…like rising gas and food prices?

We’ll be watching intently and waiting patiently to find out.  Bill Gross, on the other hand, has already made up his mind…

Betting on the Federal Reserve

Bill Gross, the Bond King, is betting on inflation.  But that’s not all.  He’s betting $8.1 billion the U.S. economy experiences inflation over the next 10 years.

Here are the details…

“Bill Gross’s Pacific Investment Management Co. made an $8.1 billion wager that the U.S. won’t suffer a decade of deflation like the one that crippled Japan starting in the 1990s,” reported Bloomberg early last week.

“That’s the notional value of long-term derivative contracts tied to the U.S. consumer price index that Pimco’s mutual funds entered into during the first half of this year, according to a regulatory filing.  The funds received $70.5 million in up-front premiums under these contracts, known as inflation floors, in return for agreeing to pay investors should prices decline in the 10 years ending in 2020.”

Ultimately, Gross’ bet comes down to a bet that the Federal Reserve will keep printing money until prices go up. 

Seems like a good bet to us.  In fact, it seems like such a good bet…such a sure thing…such a practical guarantee that we’re overcome with suspicion.  You see, not only are we skeptical of the obvious, on top of that, we’re doubtful too.


M.N. Gordon
Great Depression Online

P.S.  The upcoming Casey’s Gold & Resource Summit (Oct. 1-3) will deeply delve into the subject of gold and gold-related investments—which are among the few assets that can save investors from the approaching economic mega-storm.  While the summit has long sold out, you can still hear the priceless investment advice, including stock picks, from financial gurus like John Hathaway, portfolio manager of the $1.4 billion Tocqueville Gold Fund… Eric Sprott, founder and CEO of Sprott Asset Management… Richard Russell, Dow Theory Letters… Robert Prechter, Elliott Wave International… and over a dozen more.

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