The Fed And The Strong Dollar

The dollar is gaining strength but only in comparison to other fiat currencies. When it is compared to gold, it doesn't seem nearly so strong.

The recent PM sell-off had a lot more to do with equity margin calls than it did with PM fundamentals. Those fundamentals have not changed a lot for gold or for silver, although the platinum and palladium fundamentals have changed via recessionary pressure on 2012 auto sales. Because of all this, both gold and silver appear to be headed upwards once again. We saw considerable strength in silver at $34-35/oz. and again at $40-41/oz. Where it is headed now is likely the lower level of these two where it will likely settle for a time before moving back up into the low $40s. After that, difficult to see... always in motion the future is!

I agree that there is inflation and also agree with others who have calculated this by the pre-1995 US government approved method that shows it to be nearly double that shown by the more recent government and Fed calculations of "core" inflation. Unfortunately for those of us who live in the real world and not in the on paper academic world, food and fuel are must have items. Not counting them in inflation is scientifically invalid. A scientist cannot decide to eliminate some numbers merely because they produce a result that s/he does not like. Apparently, economists and bankers can do that. Back to your point, though... so, where is the inflation showing up internationally? I can see it in numerous food and fuel prices locally but was wondering where you think it is in the world at large.



According to Uncle Ben, the Fed is buying Treasuries on the long end and selling Treasuries on the short end. Are you saying that they are selling more than they are buying? If so, I had not heard that and was thinking that they would be buying and selling in approximately equal amounts so that their balance sheet would not be changed by this.



I would agree with that. Higher paid Americans tend to be more experienced and better educated. Many of them are in technical fields, such as computers, software, engineering, science, and medicine. It is routine for such key employees to be well paid and for that pay to exceed inflation. Many of these employees are in high demand, so are more mobile than lower paid workers. Most businesses that have such employees work hard to retain them. In today's economy, lower wage employees are in low demand and many are available for even a few job openings. The law of supply and demand is in full swing in both cases.

US Treasury bonds seem a lousy investment, regardless of duration. Considering how taxes and inflation affect one's gain on an investment, both of these have to be earning less than zero percent. I'm thinking that the bulk of this traffic in US Treasuries is a knee-jerk reaction to the troubles in Japan and in Europe... that plus a generous dose of inertia on the part of investors who think that these instruments are still worth buying. With big cap blue chip stocks paying 3% and better dividends, buying US Treasuries looks pretty poor by comparison. Perhaps it is just that the stocks are not backed by the "full faith and credit" of a hopelessly debt-ridden government?