The Real Revolution is Fighting Asset Inflation

Update: The Beige Book is out and CNBC says that corporations are not able to push prices through to retail or the consumers. Here is the deal: Steve Liesman says they are going to try to push these price increases through again. Don't bite folks. Stay the course. Don't accept the increases. Shop down to Sam's Club which is seriously lowering prices. Costco is over charging. Protect yourselves and shop at Sam's until Costco comes around.

Update: We know that asset inflation drove prices up in food in 2007, causing some in West Africa to starve to death. We know Goldman and others engage in that churning of contracts that ultimately gives birth to higher prices when underlying demand is not increasing. But many do not know that the Fed has a lot to do with this and works in easing interest rates to hurt consumers everywhere, especially in poor countries, as they are unable to cope with asset inflation.

The discussion below has become one of unintended consequences. The effort to cause the dollar decline in the face of Euro weakness is failing. There is a chance of a double dip and even of a depression. The G20 leaders are split. Europe is afraid no one will buy European bonds. So Europe, being afraid of inflation because of history, will cut budgets and shrink growth. The US, which fears deflation because of history, wants to continue to prime the pump. However, it is likely that the voters will rebel. If Summers and Geithner get their way, it is possible that the dollar will decline versus the Euro. However, it remains to be seen if this decline will be massive and uncontrolled. The reason we don't know is because we don't know how much Europe will shrink, how much they will keep to their budget controls, etc. If the dollar weakens and the world deflates, we could have asset inflation and a major recession at the same time.

President Obama gave an ominous speech to theG20 in June 2010. He said that America can no longer be the purchaser of the world's goods. Well, maybe the citizens should have been bailed out instead of the banks, Mr Obama. I have been harping on this subject for a long time. You kill the golden goose of world prosperity, the US consumer, and you kill the world economy. There will be no consumers to take their place.

Of course this Larry Summers led insanity of a weak dollar is messing with world recovery.Why? Well, because we have a carry trade that is inflating the value of assets everywhere. I repeat, our weak dollar is inflating the value assets everywhere. This must stop. I repeat, Larry Summers, this must stop.

This is a valuable lesson in unintended consequences of messing with the free markets. While the free markets need to be regulated they do not need to be manipulated in such a way as to put the world economy in danger. Americans need to be made aware that as assets inflate, wages are deflating in a world competition for cheap labor. This is a major crunch and attack on the standard of living of mainstreet.

The US is just going to have to face facts. We are Japan. We have zombie banks. We need a strong dollar both for the world economy and our own citizens. It is the only raise our citizens can get, in order to avoid skyrocketing overpriced gasoline, houses, etc. Wake up Larry. Hello Larry. Are you listening?

It was reported today that the FHA is considering tighter underwriting standards for housing. Well, that is important because it will help the dollar, and slow the housing bubble that the FHA is creating. Economic forces are powerful. We have to have better underwriting because no one will buy the mortgages except for the Federal Reserve private bank if we don't up the standards.

There is a choice coming. I don't know if it will be this year or next. But clearly the private Federal Reserve Rip Off Bank will have to make a choice between the banks and the consumer. The consumer needs a strong dollar, and needs higher interest rates to put a stop on the dollar slide. Yet they cannot raise interest rates with the massive real estate issue dragging on the economy. Actually, real estate prices will decline further than they already will decline if interest rates are raised! This will cause fewer loans to be paid back to the banks. While the banks want inflation on one hand to lower the value of the loans, the accompanying interest rate rise will hurt the bottom lines of the banks!

While banks are borrowing from the Fed at ridiculously low rates, they are investing in treasury bonds, keeping the bond market going. They are not making the money they need to be making by lending to customers. They would make much more that way. Their return on investment is dismal, as the charts show at the above link. As I argue below, the consumer cannot afford exploding asset values, and gas can't go to 5-6 dollar a gallon. But the Fed is going to have to choose between massive asset inflation and bank solvency. They are going to have to raise rates and that bodes ill for the biggest banks, ie, Wells Fargo, JP Morgan, Citibank, and Bank of America.But I don't see them raising rates when the alternative is an easy money attack upon mainstreet.

In the long run, banks could actually make money if assets were not so inflated. They would loan money if assets were fairly priced.

Be sure to take the frugality poll down the page. I want to know over time how people are thinking about thrift and spending.

Americans must use their brains in order to defeat the banksters who have attacked that average American with upside down Class Warfare. Don't let CNBC and their minions, Cramer, Kudlow, Burnett, or any other commentator tell you that Class Warfare is being waged from the bottom up. I watch them daily and have heard this over and over from them. It is not! It is being waged from the top down. I would suggest to you that there are only two ways to fight this class warfare. I have commented extensively about the first way, that is, to refuse to do business with the international bankers, ie, JP Morgan, Wells Fargo, Citibank, Goldman Sachs and Bank of America.

I have stated elsewhere on Hubpages that these banks have waged a war of toxic loans and usurious credit card and commercial loans against the average American. I have stated how to fight this bank abuse and there will be many links below to further guide you into a public and/or private protest of these banks.

But the central bank of these major banks, the privately owned Federal Reserve Bank, has embarked on a weak dollar policy. We must fight this policy with budgetary restraint in household spending. The investors see the Fed putting the US into debt by an additional 12 Trillion dollars, bringing the total from 11 Trillion to 23 Trillion almost overnight. I have railed about the thieving nature of our Federal Reserve bank and Treasury Secretaries Paulson and Geithner in other Hubpages. However, I have not spoken about the result of this pumping of money into the system, asset inflation.

Asset inflation is robbery of the average American. Prices explode at the pump. There is no really sincere effort to free the United States from foreign oil, and oil in general. It is not the oil companies that have pushed up the price of oil and gasoline. It is the investors like those who invest through Goldman Sachs that have driven up the prices of commodities, resulting in asset inflation. Asset inflation is theft pure and simple. Asset inflation has been brought on by massive shorting of the US dollar or the borrowing against the dollar. This shorting profit is then used to buy commodities, driving up the costs of everything for the man on the street.This casino scam is called the carry trade. The Federal Reserve facilitates this carry trade by buying debt. The casino that drove the markets off the cliff is working overtime to do the same thing again, and with leverage! Nouriel Roubini has said that the carry trade will unwind violently.

But there is a way for Americans to fight asset inflation. Don't buy what you don't need. That is the way to fight asset inflation which will make your standard of living unbearable. If we buy houses and bid against one another the houses become too expensive. We saw what happened the last time that happened. And the powers that be, ie the Fed, wants this bubble to happen all over again. Don't buy houses or gasoline, except when absolutely necessary. Rent, and drive less. If you buy houses in this environment, copper, and the building materials will also continue to be driven up.

You can make the dollar stronger and you can revolt against the powers that be by simply being frugal. Americans are destroying their own financial health by not being frugal. Savings are being punished, as the dollar falls in value. Don't spend, and accumulate your dollars. There may be forces on the way that will make those dollars more valuable, especially if the banks are forced to raise their capital requirements to account for all the crappy and toxic loans that remain on their books.

Just remember, if this were an ordinary recession, these banks would be coming out of this funk by now. But they aren't. They are struggling. Please folks, give yourselves a raise by being frugal. Don't play into the hands of the thieves and robbers who want you to pay more for gasoline and other commodities.

Americans can, above all other peoples, stamp out this inflation threat and asset inflation out. We can do so because our economy is 3 times larger than China, and we have the power to change the values of assets if we spend less on them en masse. We must do this because it is the patriotic thing to do. And it is the prudent thing to do in the face of dangers that remain to the economic recovery. The recovery has been based upon reflation of assets and will hit us hard in the wallet if we don't put the breaks on the excesses of Wall Street and the Federal Reserve Bank.

This revolt is not a call to arms, but rather is a call to sanity and to the values of frugality and thrift that builds real growth of economies over time. Please listen and take what I have said here to heart.

I believe in the end the Fed will be forced by the Bank of International Settlements to raise bank capital requirements, and establish other deflationary or at least disinflationary practices. But we can help this process along with frugality!

CPI is core inflation, according to the Federal Reserve Bank. CPI is based upon rents, and is based upon wage inflation. Of course rents are declining and wage inflation is diminishing. So on the surface inflation looks in check. That is what the media will tell you as well.

However, in a bubble economy,( and don't be fooled, another bubble is forming in lots of areas), the CPI does not capture the true rise in the cost of living. Assets are not weighed properly. What we really have are declining wages and increasing prices for gasoline, and agriculture commodities. Commodities tied to Chinese economic growth have been the fastest growing. This hurts the consumer and is inflationary. We really, as a people who have not had increases in real wages for a decade, need the dollar to be stronger. We need a deflationary push to give the United States consumer real purchasing power.

That deflationary push will only come if people make a serious effort, as a society, to break the cycle of credit and asset inflation. Otherwise we will have difficulty paying for basic necessities. Oil is marching up to 100 dollar a barrel and materials push up the costs of cars, houses and large consumer items.

You would think that the stock market would rejoice at a stronger dollar. With a stronger dollar, the consumer has more purchasing power, and the consumer is able to contribute a greater punch toward economic growth. Yet the stock market could care less, apparently, about the American consumer. The US stock market investors have apparently taken the view that the foreign consumer and foreign economic growth is more important. However, it is very clear that the United States consumer is still king and can still determine the rise and fall of the entire world economy.

That is why, of course, that if any bailout were to have any effect, it would have been established to have helped the balance sheets of the average American families. Of course that did not happen, and the big and greedy banks were bailed out in spite of their bad behavior rather than the strapped American consumer.

But the American consumer is crucial to world growth. If there is no money to bail him out then the government must give him more purchasing power. Deflation is the only way that purchasing power can be manifested. Continual inflation of assets is robbing the purchasing power of the golden goose of world prosperity.

In the past, America could inflate without harm to the consumer. The dollar was very strong, and the consumer had little debt and an abundance of savings. That was what happened in the 70's and it resulted in a recession in the early 80's. But America cannot do that to her citizens now, because there is little savings, and way too much personal debt. The consumer needs a strong dollar no matter what the stock market says!

The original American revolution was for independence from the Rothchild owned Bank of England. If we are to maintain this revolution we can, by frugality, kill the credit bubbles and make the Federal Reserve Bank irrelevant.

It is likely that inflation will be abruptly stopped in its tracks, and interest rates will rise, but for a reason that is related to other returns in other countries. Australia's central bank raised interest rates. As others do so, capital will flow to those countries to take advantage of rates that are better than US rates. It will be necessary for the Fed to raise rates, which is deflationary, and is going to be a major drag upon the stock market and on the housing market, that is already reeling with massive option arm and prime foreclosures. These are hitting now with increasing force.

As interest rates rise, and the economy slows again, the stock market will lose value. How much? No one knows, but the loss could be large. If you have capital, preserve it! However, understand this, another housing bubble will come if rates are not raised sufficiently, and this is an aim of the central bank.