Proof Positive That Central Banks And Central Planning Fail

Regarding the recent Central Bank coordinated intervention, the key take-away point is that the ECB and US Federal Reserve attempted “shock and awe” tactics with their latest announcements by throwing out words such as “unlimited” and “open-ended.”

The implication here was that the Central Banks would do everything they could to prop up the financial markets. However, as has been the case with every Central Bank intervention, there are unintended consequences.

The first unintended consequence concerns the fact that both programs are essentially a form of “intervention to infinite.” The problem with this is that the primary driver of stock prices over the last three years has been the anticipation of more monetary stimulus from Central Banks.

Indeed, the New York Fed itself has openly admitted that were it to remove the market moves that occurred around Fed FOMC meetings (the times when the Fed announced new programs or hinted at doing so), the S&P 500 would be at 600 today.

So, by announcing programs that will be on going in nature, both the ECB and the Fed have removed the anticipation of future Central Bank intervention from investors’ psychologies. This could become highly problematic, especially if these latest announcements turn out to be duds.

Speaking of which…

Spain’s ten-year bond yield has broken back above 6%. To see Spain’s sovereign bond yields rising like this after the ECB announced it would essentially provide “unlimited” buying as support is simply stunning. And it indicates in plain terms that the ECB’s program was in fact a dud.

In other news, we find that even barely literate high school students have a better understanding of job creation than Washington.

In case you missed it, recently the US public school system has implemented a series of reforms to mandate what students should eat based on a healthier diet.

The program was spearheaded by First Lady Michelle Obama, who, despite not being a nutritionist or having any sort of medical degree, has decided she knows what’s best for children in terms of their diets.

As a result of the reforms, the cost of school lunches has risen by $0.20-$0.25 per plate. And students don’t like it. In fact, many of them have begun protesting the reforms saying that they’re hungry and the food portions are not enough.

However, the far more interesting development concerns students who have begun a black market of selling food to other students. Several enterprising individuals have begun bringing food to school and selling it to other students. One student simply brings in a chocolate syrup bottle and sells “shots” to classmates.

Bear in mind, SAT verbal scores just hit their lowest levels since 1972. And this is after the test was dumbed down several times.

What’s my point with all of this?

That high school students, even those who are borderline-failing their SATs, have a better understand of economics and job growth than Washington bureaucrats.

Welcome to the USA.

The reason the US rose to power was due to a Democratic Capitalism of innovation and entrepreneurialism, NOT the Government running things. In the recent case of school lunches, the Government has gotten involved, prices have gone up, and students are unhappy. As a result, other students have stepped in, creating a sub-economy for lunches in the schools.

Want to fix the economy? Get the Government out of the way. Heck, even SAT failing high school students know this.

But don’t expect the folks in Washington or at the Fed to get this. They believe that the medicine for the economy’s sickness is the very item that caused the sickness in the first place: more debt and loose monetary policies.

There’s a word for low economic growth and high inflation… it’s called stagflation… and it’s going to be getting worse in the coming months. Gold and Silver have already broken out of their wedge patterns, and the US Dollar is getting perilously close to breaking down in a BIG way.

On that note, we just published a Special Portfolio of unique inflation hedges: investments that will not only maintain their purchasing power but will outperform even Gold and Silver as the Fed and ECB debase their respective fiat currencies.

We’re talking about investments of extraordinary value that 99% of investors are unaware of: asset plays trading at massive discounts to their underlying values. The kind of investments that can show you double-digit returns in a very short period.