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Inflation Based Recovery; A Dangerous Game:

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Message Mike Folkerth

March 17, 2008

U.S. NEWS: I am so proud of all of you for bailing out the investment bank Bear Stearns. Did I hear someone say, “That’s news to us.” Surely Bronco Ben Bernanke contacted you prior to pledging federal funds to bail out Bear?

This is the same Bear Stearns whose CEO received $14.7 million in 2006…as a bonus!

The reasoning given for the FED and rival bank J.P. Morgan Chase bailing out the troubled bank explained Richard Bove, an analyst at Punk, Ziegel & Co, was that left unattended, “it has the potential of bringing down the whole market.”

What happened to Bear Stearns? In a nut shell, there was an old fashioned run on the bank. The natives got a little restless. Being an investment, rather than a commercial bank, there are no government guarantee’s (FDIC) to protect the investors.

So then are there other banks in the same boat? Apparently not Goldman Sachs, whose CEO, Lloyd Blankfein received a bonus in 2007 worth $68 million. The employee’s didn’t fare too badly either, with an average bonus reported as $661,490.

Is Goldman then immune from all the banking problems? I don’t think so; their turn just hasn’t come up. But, as we see massive commercial loan failures; it will. Goldman made a lot of their money funding heavily leveraged mega buyouts.

But not to worry, this is America. Bring us your poor, your tired, and your bad loans and we’ll force the Middle Class to bail your sorry butts out. If Bear Stearns is bailed out, why not Goldman Sachs should their fortunes turn?

The FED went into emergency session over the weekend and lowered the Fed funds rate by ¼ percent. Tomorrow, just two days later and at their regular meeting, Bronco Ben and the “Inflation Five” will vote to lower the rate by another ¾ percent.

At the same time, more than $200 billion dollars are being pumped into the system by allowing the banks to put up their bad real estate loans as collateral.

This move is intended to render any savings worthless as real inflation rages above 7% and interest bearing paper drops to near zero. The underlying intention is two fold; one is to drive money out of savings and back into the more risky stock and real estate markets, and two, is to make money so cheap that a new round of borrowing begins before the election. And, lucky you can use your tax rebate for a down payment. Funny how this all came together huh? Must be a coincidence.

The real dastardly ingredient is inflation, which will artificially drive up real estate and other values in order to create the false impression of equity with which to position the new loans against. This move will also drive up tax collection.

This is a dangerous game that the Fed is playing. An inflation based recovery is bad business all the way around and a last ditch effort.

The deadly brew of inflation is being cooked to perfection. The dollar will continue to shrink, prices will continue to climb, and those on fixed incomes will suffer the worst of it.

America’s economic pyramid scheme has reached the point that acting in the best interest of the masses is no longer possible. Middle America and the cat’s on Wall, can’t both be fat.

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Mike Folkerth is the author of "The Biggest Lie Ever Believed" and is not your run-of-the-mill author of finance and economics. The former real estate broker, developer, private real estate fund manager, auctioneer, Alaskan bush pilot, (more...)
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