Right in plain site, the Federal Reserve is doing this to the US money supply. It is a hockey stick with the blade pointing up, but will one day turn into a big, bloated chicken and come home to roost. The Fed’s global counterparts continue apace with inflation as well.
Meanwhile, economic data like M2′s velocity would give out of control monetarists free license to provide more of what they say is good for us, because newly printed money is not getting out into the economy to a sufficient degree. ‘If we can just inflate a little more’ think our myopic bureaucrats, ‘maybe that will finally do it.
The sanitized story is that our Dear (Monetary) Leader is inflating to get unemployment down (today’s ‘Jobs’ report is a good lurch in that direction) to such-and-such a level and inflation up to such-and-such a level. M2 velocity and other indicators of inflation’s success show that the free money, printed up through legacy debt monetization are probably being hogged up, marked up and/or retained by the ‘first user’ banks to their own benefit. The same banks that in large part caused the systemic problems that the Fed is trying to remedy now.
Yet to the extent that the new money gets out to the general public, it appears the public is using the funds to do the right thing and pay off debt and get current. This is a good thing, but in the public’s hesitance to lever into asset speculation, the signs (outwardly visible price/cost effects) of inflation are just not there… yet. What will happen when the refugees from the 2008 crash transition from personal balance sheet repair to an urge to join the speculative party currently being promoted?
The last two graphs above are pictures of the deflationary backdrop that we might be tempted to believe is in play. The first graph is a picture of full speed ahead inflation being promoted against this. The majority apparently needs price confirmation that inflation is coming, and that could start to happen as households make their transition from prudence to casino mode.
In dropping below important support at 1524, gold has signaled no inflation problem – even though they are inflating to beat the band. US Fed, ECB, BoJ… it’s a free license and powerful, revered policy makers the world over are basking in the sweet glow of adulation and submission by the confused masses.
Here he is once again, just for effect… and especially in light of today’s unquestionably good ‘Jobs’ data. The Fed chairman is winning… duh.
Dear (Monetary) Leader
Gold is on a bear market rebound, which is likely to fail or encounter extreme volatility somewhere at or below the red resistance line on the chart above. I would love to be wrong and indeed, with the fire that our Hero and his friends are playing with (inflation despite an outwardly stable economy; i.e. blatant bubble making), we just cannot know when they will lose control of inflation expectations.
Maybe it will be when the public completes its cycle of austerity, which is a normal reaction to the 2008 near death experience, and starts buying up assets at an increasing pace. Or maybe this very day (jobs) is as good as it gets and deflation will eventually grip and suck the whole construct down in a whirlpool of toxic swill.
But lose control they most likely will because while they can keep things in line over periods that are uncomfortably long for honest money advocates (but are actually quite ephemeral in the big picture of centuries, during which gold has acted as money), honesty will win in the end; even if many of us are dead by the time it happens. 2014 ought to about do it. 
The macro books always get balanced one way or another, eventually.
Au-CCI Ratio, daily
Gold as measured in ratio to commodities (‘real’ price of gold) is on a rebound. When gold rises vs. commodities, the indication is for economic contraction as the counter cyclical metal out performs positively correlated commodities. Will improving ‘Jobs’ data and the recent okay ISM signal a new down turn in the real price? Stay tuned.
This illustrates just how frustrating the current stock market bull has been. Commodities (see copper) have negatively diverged, gold’s ratio to silver (a traditional illiquidity indicator, when rising) has risen strongly just as anticipated, and yet the stock market – being led by its scouts in junk bond land – has continued to float higher without a care in the world.
S&P 500 & HYG, daily
The indication is that speculation (for officially palatable assets, at least) is alive and well as the Fed has promoted a perceived backstop to any bearish outcomes, giving people the confidence to chase yield ever lower (i.e. take on more risk) without fear of repercussion. Risk on, as they say. A big underpinning I might add has been a still skittish public, as the recent bearish AAII sentiment attests.
I wonder if it is not the public chasing junk bonds, but rather the public’s professional money managers that are chasing yield (risk). This reminds me of 2008, when so many buttoned down professional managers (of pensions, etc.) were exposed after having bought up all manner of dangerous derivative investment vehicles and putting them in the public’s retirement accounts.
Au-CCI ratio, weekly
Back on the gold-CCI ratio, the weekly view shows an ongoing economic contraction that is secular in nature. We have anticipated Au-CCI holding the weekly EMA 300 to keep this trend intact. So far so good… or bad, if you are of the belief that policy makers can actually change economic fate over the long-term with their macro parlor tricks.
Bottom Line
Right now, gold is getting clubbed with the ugly stick known as the lack of inflation’s effects, like rising prices. It is being treated like a commodity. Most people view inflation as rising gas, food and services prices. But inflation is the first graph in this article; reckless money printing with no prudent limits.
They are inflating and the stock market and economy are responding (stock market is bubbling and the economy is not imploding and even lurching toward growth to a very tepid degree). But there is a lot of distortion painted into the macro by policy maker actions (active market manipulation to verbal jawboning), peoples’ misperceptions (gold is silver is copper is oil is corn is hogs… an inflation hedge) and things will just have to sort themselves out… on the market’s terms, not yours or mine.
Gold is fine. It is the only monetary anchor left and this will be apparent when the pretense that policy makers are in control is lost one day. Meanwhile, right minded people will try to have balance and stay intact in order to be on the right side of things when the time to adjust out of this phase of policy maker adulation ends and the inflated chickens come home to roost (inflation) or die on the road back home (deflation).
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Remember David Stockman, you know,that left-wing kook from the commie Reagan Administration? This is what he has to say about the policies of Bernanke:
"Since the S.&P. 500 first reached its current level, in March 2000, the mad money printers at the Federal Reserve have expanded their balance sheet sixfold (to $3.2 trillion from $500 billion). Yet during that stretch, economic output has grown by an average of 1.7 percent a year (the slowest since the Civil War); real business investment has crawled forward at only 0.8 percent per year; and the payroll job count has crept up at a negligible 0.1 percent annually. Real median family income growth has dropped 8 percent, and the number of full-time middle class jobs, 6 percent. The real net worth of the “bottom” 90 percent has dropped by one-fourth. The number of food stamp and disability aid recipients has more than doubled, to 59 million, about one in five Americans. . . even Mr. Obama’s hopelessly glib policies could not match the audacity of the Fed, which dropped interest rates to zero and then digitally printed new money at the astounding rate of $600 million per hour. Fast-money speculators have been “purchasing” giant piles of Treasury debt and mortgage-backed securities, almost entirely by using short-term overnight money borrowed at essentially zero cost, thanks to the Fed. Uncle Ben has lined their pockets.
If and when the Fed — which now promises to get unemployment below 6.5 percent as long as inflation doesn’t exceed 2.5 percent — even hints at shrinking its balance sheet, it will elicit a tidal wave of sell orders, because even a modest drop in bond prices would destroy the arbitrageurs’ profits. Notwithstanding Mr. Bernanke’s assurances about eventually, gradually making a smooth exit, the Fed is domiciled in a monetary prison of its own making."
IF you don't like Stockman, than read a few essays by Paul Craig Roberts, the former Assistant Secretary of the Treasury, also another member of the Reagan Administration. Here is what Dr. Roberts recently had to say about the Fed
"The Federal Reserve’s policy is focused on saving the banks, not on saving the economy. The Federal Reserve is purchasing not only new Treasury bonds issued to finance the more than one trillion dollar annual federal deficit but also the banks’ underwater financial instruments, taking them off the banks’ books and putting them on the Federal Reserve’s books.
Normally, debt monetization of this amount results in rising inflation, but the money that the Federal Reserve is creating in its attempt to manage the public debt and the banks’ private debt is hung up in the banking system as excess reserves and is not finding its way into the economy. The banks are too busted to lend, and consumers are too indebted to borrow.
However, the debt monetization poses a second threat that is capable of biting the US economy and consumer living standards very hard. Foreign central banks, foreign investors in US stocks and financial instruments, and Americans themselves observing the Federal Reserve’s continuous monetization of US debt cannot avoid concern about the dollar’s value as the supply of ever more dollars continues to pour out of the Federal Reserve."
When the US dollar finally loses its global reserve status and the Weimar policies of Bernanke come home to roost, the Fed will no longer be able to wave its electronic magic wand to pay US debts. When the US currency is spurned and is forced to compete in the global market to purchase all the imported goods that we used to make here, which now create a middle class in China and India while we are de-industrialized at home, with no tax-base, no jobs, no future . . . that is when the new American serfs will go to Wal-Mart and find the prices resemble Nieman Marcus.
This is the sort of hyperinflation we will eventually face, thanks to the insanely corrupt policies of Bernanke and the Fed. Instant dollar devaluation, in relation to the currencies of nations NOT routinely printing trillion$ and trillion$, as the petrodollar is erased and only the rest of the non-industrial nations will accept it. Good luck buying anything at that point, unless you have some gold and silver coins . . .
Yeah, just what the world needs is for more people to listen to what the raygun "administration" had to say.
The sky isn't falling yet, and there have been people hawking hyperinflation for decades. If you keep it up long enough, sooner or later you'll be right. No monetary system lasts forever because money is a human creation, and all money is fiat whether "backed" by a shiny metal or not. That is why a prudent person puts SOME money into some kind of real asset, commodity or real estate or something backed by such. Doesn't mean that those are "real money," just that diversification makes sense.
The Fed has been doing the right thing.
Hey this is the same game that always. At some point in time they will once again change the way that they measure inflation an then the way they measure the money flow. Count on it to happen.
What's that old timer's saying? You cannot make a silk purse out of a sow's ear. When it makes no sense, stay out or trade short term only.