Gary North is one of my favorite writers at LewRockwell.com . He has nailed it with his latest post 'Monetary Unwinding and Secondary Recession'.

Officials at the Federal Reserve System insist that the FED will unwind its more than doubled monetary base. They do not say when. They do not say how. But they insist that they will do this when the economy recovers.

The FED has begun this process. The press has not paid any attention to this, but the evidence is unmistakable. Any time you want to monitor any of this, search Google for "Federal Reserve charts." You can see for yourself.

The FED is caught in a trap of its own making. Bernanke cannot figure a way out of it. He promises to unwind, but this is the assurance of the alcoholic that his days of uncontrolled alcoholism are behind him.

There has been a recent period of monetary sobriety. The FED can reverse this at any time. For as long as it lasts, however, the economy will be faced with deflationary pressures. This is healthy, but not for incumbent politicians. They will demand action on the part of the FED to get the economy moving upward again. All the FED can do at that point is inflate. At some point, it will. But, for now, it has adopted a policy of preliminary unwinding.

Let us hope that this continues. But let us be realistic: it won't.

1 comment:

The_Kid said...

I can't see how, in an election year the gov will allow the country to start taking its medicine, but I 'couldn't see how' a lot of things.
I hope they don't in the short term, I'd like to wind out of my gold positions first.