Menu predicted after QE2 was announced that rumors of QE3 would begin sometime in the spring, however, yesterday that prediction was shattered by Tom Hoenig. That’s right, the same Tom Hoenig who is President of the Kansas City Fed said yesterday, “The Federal Reserve could debate extending its bond buying program beyond June if U.S. economic data prove weaker than policy makers expect.” In our opinion, this is some early red meat that the Fed decided to throw at the market just in case the Egyptian revolution got in the way of Dow 1 million (joking, maybe).

The Fed has once again predicted another year of recovery, the 5th consecutive year they have made this prediction. Of course the Fed knows that the economy is suffering from irreversible trends and previous Fed induced bubbles. The baby boomers are going to put significant downward pressure on our economy and the Fed’s plan is to blunt that downward pressure with liquidity, also know as inflation. Now we know there is a debate amongst our favorite out of the main stream economist about whether we will see inflation or deflation. has no official stance on this, however, we do know that it is the Fed’s stated goal to have more inflation. The Fed is in charge of the currency, not just any currency, but the world reserve currency, so when the Fed says they want inflation, we usually pay attention. Even knowing the coming changes in demographics and our global economy, the fact is, nothing can out pace a digital printing press that has a mad man sitting behind it. Looking back at QE1, the result has been a lot of price inflation. Stocks, food, and government expenses are rising even as incomes and tax revenues are shrinking. Of course we know that the Fed knows their prediction of a return to the 1990’s is impossible, so the type of recovery they have placed in our minds is not going to happen this decade. So what does this all mean? QE3 and after that QE4.

The problem with the type of inflation we are seeing from the Fed is that it is doing exactly the opposite of what our economy needs. Instead of having a real correction, the Fed is trying to keep the imbalances in place. Bailing out the ultra rich and giving cheap money to Wall Street has put our nation in an even worse spot than we were prior to Lehman Brothers filing bankruptcy. Food prices are rising, government debt levels are soaring, the middle class is shrinking, and the entire economy is now completely dependent on massive government spending and a permanent low interest rate policy set by the Federal Reserve. Think for a moment about a person who decided to become a realtor in 2006, they based their decision off of a Fed induced bubble and now this person has to find a new career, but instead of being able to make an honest decision, they risk falling into another career dependent on the Fed’s zero percent interest rate policy. Or what about the entrepreneur who needs a loan for a business that is going to make all of our lives better? Well, money is tight for people like him because you have to remember, 1.5 trillion for 2011 is going to be loaned to the federal government instead in order to prop up the old bubble busted economy. Money spent by the government is money that is not going where it should have naturally gone, that is, wherever individual producers would have spent it.  Look at this chart for people on food stamps, notice the acceleration after 2008.

Now, of course most will point to the credit crunch and real estate crisis, yet over 40% of the people in this chart have jobs. So what you are seeing is the destruction of America’s middle class because expenses are now so unbearable that we have millions of working Americans unable to feed their families without government assistance. Now the Fed and media have worked tiresly into brain washing our citizens into thinking that deflation is the big bad wolf and that things being more affordable is some how going to hurt you. When the truth is, the government needs inflation for tax revenue, debt payments, and endless expansion. Now of course the government’s argument is that if we allow something like housing to go down, it’s going to hurt all the current homeowners who want to sell, yes, but let’s remember it’s the government who put current homeowners in that situation. It is sorta like a bank robber pointing a gun at the teller while letting her know that she could get hurt if she doesn’t listen to him. Using the logic of the modern day Keynesian economist, it would appear that the bank robber is also her hero.

Rice Futures Surge 8% in the Past Two Days!

Inflation, weather, and a growing population have put a lot of pressure on the global supply of rice. Rice futures are up 8% in the past 48 hours reaching $15.99 per 100 pounds. Now this is the highest it has been in 2 years, however, it is still much lower than the $24 per 100 pounds by the end of 2011. believes that we could reach this 2008 high by December of 2012 due to QE2 and rising global demand in general.

Physical Silver

The U.S. Mint reported that it sold 6.4 million silver eagle coins for the month of January. This shattered all previous records, in fact, it is roughly 50% higher than the previous all time record. The paper market continues to supress the price down which, in our opinion, is in our favor. believes that we will see 50 dollar silver sometime in 2011. If we can break through the $50 mark, then all bets are off. We plan to announce our favorite silver company this weekend, we will also have a few more surprises being announced this weekend that we are sure you will enjoy.