Gary North: Bernanke has snookered us all

1:20p ET Saturday, September 22, 2007

Dear Friend of GATA and Gold:

In a new essay, "Bernanke Has Snookered Us All," financial writer Gary North argues that under Chairman Ben Bernanke the Federal Reserve is actually reducing the money supply even as it is lowering interest rates, rescuing financial institutions from their bad mortgages while increasing the pressure against price inflation.

North speculates:

"The Federal Reserve was simultaneously selling T-bills from its own account. It sold enough to more than offset its purchases of repos from commercial banks.

"The buyers need not have been American commercial banks. They could have been foreign central banks, individual investors, and funds looking for safety/liquidity. The point is that the sale by the Fed extinguished the money that came in from outside the Fed.

"This solved the immediate problem: supplying reserves to banks. If the Federal Open Market Committee bought repos of assets other than Treasury debt, this provided liquidity for assets that would not have been worth as much as the Fed loaned had they been sold into the free market.

"Meanwhile, the sale of Fed assets such as T-bills enabled the Fed not to increase the rate of money growth. It made the repo purchases non-inflationary. ...

"I think Bernanke is determined not to inflate. He is willing even to sell T-bills to offset repurchase agreements.

"Whatever the Fed is doing to shrink the monetary base, that is what it has been doing."

North believes that the Fed will inflate the money supply but only after an economic recession is more apparent in the United States.

Of course North's scenario doesn't contradict the vast inflation already created by the Fed and other central banks in recent decades, inflation that has been concealed by the explosion of derivatives and the manipulation of price data in government reports. Nor does North's scenario contradict the metal shortages that have been caused by price suppression. If the Western central bank market-rigging scheme breaks down anywhere -- if, say, certain Eastern countries stop playing along -- there may be plenty of room for the market keep moving the metals.

But North says rampant inflation is not Fed policy yet and urges investors not to bet on it.

You can find North's his new essay at Lew Rockwell's site here:

http://www.lewrockwell.com/north/north568.html

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

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