All Signs Point To Inflation

By Peter Costa

There is no doubt that we are in a deflationary period. With unemployment numbers well over 168,000 for this year alone, individuals are finding themselves scrounging for money. It seems like everyone has their eye on the stock market in hopes that if it starts to climb it may be a sign that we are moving past this deflationary period. As much as we would love to move out of this less ideal period what is going to follow is far worse. It is pretty factual to say that what is coming after this deflationary period is unprecedented inflation. I do not make this comment out of thin air I make this out of immutable fact. If anyone were to take a close look at the banking crisis, they would come up with the same conclusion.

Since September 2008 the printing press has been turned on 24/7 churning out as much money as it can possibly spit out. With the $1.75 trillion mortgage crisis starting off everything it has now snow balled into atrocious levels. Since the mortgage crisis has unfolded we have seen countless multi-billion dollar corporations filing for bankruptcy or even worse seeking bailout packages. We have seen a $787 billion stimulus package pass among many other attempts to salvage the falling pieces of the American economy.

Where does that leave us today? With our entire banking system on the verge of complete financial meltdown, that is where. At the beginning of 2009 the FDIC insurance fund had over $52 billion in assets. By the end of March this year they were shown to have $13 billion left. Over 60 banks have declared bankruptcy across the nation since March bringing the overall number this year to 81 bank failures. Included in this number are two of the largest bank failures in U.S. history which are Colonial and Guaranty. On August 14, 2009 Colonial Bank filed for bankruptcy with over $20 billion in assets making them the 6th largest bank failure in U.S history. The following Friday Guaranty Financial followed suite and closed their doors with over $13 billion in assets making them the 10th largest bank failure in U.S. history. The failure of Colonial and Guaranty has abducted over half of the $13 billion remaining with FDIC and come end of August we could see the entire fund dry up, or even worse FDIC declaring bankruptcy.

Currently Citigroup is being audited by Neil Barofsky the inspector general for TARP and could face a similar situation as Colonial and Guaranty if they do not get their books straight. In addition to the audit on Citigroup over 35 ongoing criminal and civil investigations of suspected account, securities and mortgage fraud is taking place for various banks across the nation. I think it is safe to say that we may see the current number of bank failures escalade by the end of the year. With the fiscal year end for the government coming up in September the economy is really going to start feeling the strain of everything.

Where is all of this leading us to? Long term recovery for the U.S. economy and more importantly massive inflation. For 2009 the deficit will total over $1.8 trillion, about 4 times the record set last year. The last largest deficit was 6% of GDP and we are currently at 13% of GDP for 2009. They have done a great job of deterring inflation but we all know it will have to surface sometime. There is no possible way they could be pumping as much money as they have into the system and not have repercussions. As Neil Barofsky has said the government bailout programs are not a black hole and everything has its breaking point. Ronald Fricke president of Regal Assets stated last week that globally countries are steering away from the U.S. dollar and this is forcing the Federal Reserve to produce the needed money for bailouts which will ultimately lead to inflation.

The time is nearing where all Americans will have to start paying for the financial catastrophe taking place in the form of inflation. We all need to start thinking like David Einhorn and John Paulson two of the most successful hedge fund managers in the nation. Like China they have been pouring their assets into commodities more importantly gold. If you are a larger institution or a house hold investor you owe to yourself to start hedging against the inevitable.

 Print This Post

Related posts:

1. Stress Tests And Beyond
2. What Happened To The Banks We Bailed Out?
3. Fiat Money Paving The Way For Hyper Inflation
4. Inflation to Hyperinflation. U.S. to follow Zimbabwe’s footprints?
5. U.S. Needs INFLATION to Recover?