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FTMDaily News Update – The “Wealth Effect” Deception

February 9, 2011

    by Jerry Robinson

    Good morning friends! In the news this morning: Bernanke to testify before the House, the U.S. housing crisis, the reality of peak oil, and more…

    The “Wealth Effect”… Some Fed policymakers are getting nervous at the quickening pace of what they perceive to be an economic “recovery.” New questions about whether to prematurely end the Fed’s $600 billion bond-buying program…  The fear is that pumping too much money into the system may lead to inflation… (Way to go, Sherlock.) Will the Fed be able to contain the excess liquidity quickly enough once their goals are achieved?

    As I have been telling you on my weekly radio show and in our quarterly newsletter, what we are experiencing is something known as the “wealth effect.” The Fed’s goal was to prop up asset prices through monetary expansion. The risk was clear from the beginning. Inflation will be the result. Don’t believe the hype. Protect yourself.

    Bernanke on the grill… Ben Bernanke will testify this morning before the House Budget Committee led by Rep. Paul Ryan. This time, Bernanke will be facing a new hostile Republican-led House full of arm-chair economists who have just recently “seen the light” on America’s economic crisis… Should make for some good television… But don’t expect any straight answers, just lots of posturing. You can watch it live online here beginning at 10:00am EST…

    London to merge with Canada… At least their stock exchanges… News this morning that the London Stock Exchange and Canada’s major stock exchange are seeking to merge. Both exchanges are heavy in natural resource and mining companies which will make them big beneficiaries of this long-term commodities bull market…

    Yuan may reach 17 year high… The world’s fastest growing economy, China, announced that it was raising interest rates yesterday in an effort to slow that country’s growing inflation. In response, its currency – the yuan – is strengthening. The currency could reach its highest level since 1993 sometime this week. However, news on the rate increase sent the Asian markets downward in in overnight trading, with the Shanghai Composite down 0.92%

    Peak Oil in Arabia… According to a newly released cable from Wikileaks, the U.S. fears that Saudi Arabia may have overstated its oil reserves by 40% and may not have enough reserves  to prevent oil prices from increasing. You can read the details here… One thing is for sure: the world is running out of cheap and easily accessible oil. Wars over natural resources like oil and water lie ahead…

    For a great presentation on the reality of peak oil by a former top BP exec, click here

    U.S. Housing Crisis… According to, home prices dropped 2.6% nationwide during the last three months of 2010. Now, 27% of homeowners with mortgages owe more than their homes are worth, up from 23.2% last quarter… And, more than one-third of all homes were sold at a loss in December…

    Expect the pain to continue with a record year for foreclosures in 2011… Watching mortgage rates increase with bond yields…

    In related news, the Obama administration will issue a white paper on Friday that will recommend that the Federal government get out of the mortgage business, at least partially… The proposal will call for the gradual elimination of Fannie Mae and Freddie Mac…

    Finally… A new iPhone application makes confessing your sins simple… No comment.

    Why So Serious?… It’s time to laugh a little.

    “Politics is supposed to be the second-oldest profession. I have come to realize that it bears a very close resemblance to the first.” —Ronald Reagan

    “Over the weekend Dick Cheney declared Egyptian President Hosni Mubarak a good friend. Mubarak said, ‘Dude, that’s not really helping.” –Conan O’Brien

    “Police in Texas arrested a man who was using the alias ‘Barack Obama’ while trying to steal money from 35 ATMs. They could tell something was up when a guy named Barack Obama was trying to take money from banks instead of giving it to them.” —Jimmy Fallon

    Until tomorrow,

    Jerry Robinson –


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    Jerry Robinson is an economist, published author, columnist, international conference speaker, and the editor of the financial website, In addition, Robinson hosts a weekly radio program entitled Follow the Money Weekly, an hour long radio show dedicated to deciphering the week’s economic news.

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