Bernanke Shoots Down the Dollar; New York Investing Predicts Out of Control Inflation

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

After the Federal Reserves surprise discount rate cut on August 17, 2007, oil and wheat hit all time highs. The U.S. dollar hit an all time low against the euro. Even though these markets were screaming rising inflation to anyone who would listen, two Fed governors gave speeches emphasizing that "inflation is under control". One talking-head economist after another made appearances in the financial media supporting the Fed's reality denying view. Spokesmen for Wall Street's special interests and politicians of both political parties started to loudly demand a flood of easy money from the Fed to 'save the economy' (and more importantly, their own personal skins). The Fed gladly complied and lowered both the funds rate and the discount rate by 50 basis points on September 18th.

It was clear to the New York Investing meetup that the Fed had chosen to try to save the economy in the short-term, no matter what the cost to the U.S. dollar and no matter how much inflation resulted from their actions. At the meeting held the very evening of the rate cut, it was stated flatly that, "The Fed lowering interest rates will cause the U.S. dollar to drop further and inflation to get out of hand" and "Lower Fed rates mean higher gold and oil prices" going forward (see: http://investing.meetup.com/files). This was followed up by an impassioned plea to get out of the U.S. stock market, get out of the U.S. dollar, and get into gold and silver.

While the New York Investing meetup had little confidence in the Fed's ability to rescue the economy or hold up the stock market, it was convinced that the Fed's liquidity binge would be the death knell for the reserve currency status of the U.S. dollar (Please see our video about this, "Saving the Economy be Destroying the Dollar" at: http://www.youtube.com/watch?v=s9K1lSA9AHE). The long-term implications for inflation hedges such as gold, silver, oil and food commodities were obvious. Even though the Fed and many mainstream economists were worried about potential deflation from collapsing housing prices and the stalled bond market, New York Investing staked out a clear position that the falling dollar was highly inflationary (also denied by many mainstream economists) and that this was the important investment theme for well into the future.

Next: The Markets React to Helicopternomics and so does the New York Investing meetup

Daryl Montgomery
Organizer, New York Investing meetup

For more information about the New York Investing meetup, please go to: http://investing.meetup.com/21