What Happens When The Fed Prints Money (Plus Phil’s Market Prediction for the Week).

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Posted: Nov 29, 2010 9:21 AM

I was listening to the CNBC economist Steve Liesman, whose last name aptly describes him. He is in my opinion, a result of CNBC’s human resource division posting a help wanted ad requesting a position for the “nation’s dumbest economist.” Steve became infamous during the past real estate boom when he said, “consumers are spending more than they make, which shows how resilient they are, and why we have a strong economy.” Huh?!

Today, as a reporting CNBC financial terrorist, Liesman was supporting helicopter Ben (Bernanke’s) new round of dropping money out of his helicopter. Liesman said, “that when the economy is weak, it’s always best to print more money, because money pushes up asset prices. People think that they are wealthier than they are, and they think a real boom is going on. People then invest, companies hire, and that’s what creates a real boom.” Now I ask you Steve “are you, nuts!?”

There is no doubt that injecting money to the consumer is like injecting heroine to a drug addict. However, a high like that is just temporary and phony as it doesn’t last. So too is the boom temporary and phony. It will eventually blow up leaving people worse off than they ever were before. This fix is just like what happens to an addict.

Look, you can pump extra money into a booming economy to get an extra lift – which to me is nothing short of pure fraud. Worse, the fraud cops don’t really care, and they ignore it. Still, in my opinion, it’s a crime to keep feeding money into a butt ugly economy, and the problem is that the stock market reacts to it by going higher, when it shouldn’t. Just like the 17% rally since August in anticipation of quantitative easing.

Quantitative easing is a fancy term for "printing money.” The economy is being flooded with more money because the lowering of interest rates to zero just didn't work. Once at zero and with no more bullets left to fire, a panic sets in and a last ditch effort is being made to print more money out of thin air. The Fed then credits its own account, and with that money buys government and corporate bonds from banks, insurance companies and other financial institutions in a process called open market operations.

The increase in money supply to the shadow banks like JPM and Goldman Sachs is suppose to stimulate the economy through their lending to Main Street. The problem is, they horde the money in order to increase their capital reserves, and use the money to create larger bonuses, a $144 billion dollars’ worth through high risk speculations.

This is a risk they take, knowing they have an implied guarantee with the government if they fail again. They know the cost of their risk taking will be borne by their competitors and FDIC debt guarantees. If Dodd is telling the truth when he said his bill will “not allow the shadow banks to be bailed out”, then why is it that in the 2300 page document does it provide a bailout option via the federal reserve or FDIC debt guarantees?

Because in my opinion, Dodd is not only a liar, but a fraud who has received $10 million dollars from these shadow banks over the past 10 years to protect them from regulations that would restrict their reverse distribution of wealth from the working class up to the elitist 1-percentile, such as those financial mercenaries Jamie Diamond and Lloyd Blankfein, just to name a few!

My Prediction this week….....

Hold on to your hats as the “herd” mentality has taken hold with all metals including gold now at it’s high!

I predict gold will have the most serious of corrections. Metals such as silver, copper, platinum etc. will have a correction of 10% to 12% between the 1st and 3rd quarter of 2012. Another indicator of this pending correction is real simple. When the fraudulent game of “beat the street by a penny” and the “better than expected earnings season” begins.

Fund managers who are now late in the game of investing are in a panic because they blew it by doing nothing all year long. These fund managers found themselves all caught up with the hopeful anticipation of Ben B’s fraudulent monetization scam that just did not work. “Are they Nuts!”

As I always say, compensation always dictates the financial terrorists’ behavior.

At Phil’s Gang I have a goal. The goal is to help you create wealth and in return you will at your own discretion, donate some of your earnings to help the sick children at St. Jude’s Children’s Hospital. I can teach you how not to lose your money and start to create your wealth, then why would you not give to this wonderful hospital that does so much for these children and their families? Isn’t it time to stop being a part of this “herd mentality”?

This is much easier and less costly than placing a short with a stop, or buying a put. It’s vital for any investor as a beginning or a seasoned investor to learn how to read charts. I also remind my radio audience each day that Golden Beneficial, the broker that my gang and I use, provides clients with superior tools, unparalleled support, and low commissions so that they have the competitive edge in the trading marketplace. To put it simply, we want you to succeed!

Tune in Monday through Friday from 3:00 to 4:00 PM eastern standard time at your local AM station or listen in live via my web cam at www.philsgang.com where “I’ll Tell You What Wall Street Doesn’t Want You to Know”!