Friday, August 18, 2017

Gold Price Rally Imminent: New MSM Hit Piece Just Out

Only Missing One Key Component…

Mainstream Media is out with a hit piece on gold today, and Market Watch wants you to know it’s gonna get ugly in gold right from the title:

Gold price on pace to fall the most in 6 weeks after strong data, easing geopolitical tension

The usual suspects are out in full force.WE have excellent retail sales coming in, a more warn, welcoming geo-political landscape on the world stage, and it seems like, other than a few big names losing it, the United States is looking to heal itself from the Virginia violence over the weekend.

Therefore, following cue coming off a strong week for gold prices (and silver prices) last week, we get things like this from the article:

Gold futures, which retreated for a second straight session early Tuesday, were on pace for their steepest daily drop in about six weeks as data on retail sales and U.S. manufacturing came in better than expected

On Tuesday, tensions between Pyongyang and Washington saw further cooling as North Korean leader Kim Jong Un announced that he wouldn’t launch a ballistic-missile attack on the U.S. territory Guam

Solid economic reports early Tuesday, however, bolstered appetite for assets considered risky. A gauge of New York-area manufacturing soared to 25.2, marking a three-year high in August, a reading on retail sales surged 0.6% in July, while readings for June were increased to 0.3% from 0.2%. Meanwhile, a report on import prices showed an increase of 0.1% in July.

Another factor yanking precious metals lower was a steadily rising U.S. dollar.

We need not tell anybody here at SD how the dollar is doing, and this chart pretty much speaks for itself, but for the sake of welcoming new readers into the community, well, yeah:


Silverbugs know what that channel means, and it means. Good luck with that strong dollar argument.

- Source, SD Bullion

Wednesday, August 16, 2017

Paradigm Shifts and Trend Reversals


Max & Stacy discuss Obamacare death spirals and towns left to die post-trade deals. In the second half, Max continues his interview with Gerald Celente of TrendsResearch.com about paradigm shifts: from cryptocurrencies to electric cars.

- Source, RT

Monday, August 14, 2017

Bitcoin Skyrockets Over $4000 in Sneak Peak of What Is Coming to Gold & Silver

While many of the largest cryptocurrencies are fading modestly this morning, Bitcoin is holding on to dramatic agains which saw the largest virtual currency spike to as high as $4190 as Yen, Yuan, and Won trading activity dominated volumes.

Bitcoin Cash remains in 4th place overall by market cap but Bitcoin is the only currency higher among the top 5 this morning.




Soaring past $4000…


As CoinTelegraph reports, the trading of Bitcoin in Japanese yen has accounted for almost 46 percent of total trade volume worldwide. The trading of Bitcoin in US dollar accounted for around 25 percent, while the trading of Bitcoin in South Korean won and Chinese yuan accounted for approximately 12 percent each.

Additionally, anticipated demand is being priced in after VanEck filed for an ‘active strategy’ Bitcoin ETF:
The Fund seeks to achieve its investment objective by investing, under normal circumstances, in U.S. exchange-traded bitcoin-linked derivative instruments (“Bitcoin Instruments”) and pooled investment vehicles and exchange-traded products that provide exposure to bitcoin (together with Bitcoin Instruments, “Bitcoin Investments”).

The Fund is an actively managed exchange-traded fund (“ETF”) and should not be confused with one that is designed to track the performance of a specified index.

The Fund’s strategy seeks to provide total return by actively managing the Fund’s investments in Bitcoin Investments.

Bitcoin’s solid performance in early August reflected that of gold’s amidst the selloff in stocks and bonds around the world due to the growing apprehensions over North Korea’s nuclear threat.


And the latest moves this weekend in the crypto world suggest gold will open well north of $1300 tonight.

- Source, Zero Hedge

Saturday, August 12, 2017

Jeff Clark: More Reasons Than Ever to Own Gold and Silver


Our old friend Jeff Clark joined us today for a close look at the precious metals markets. Jeff, formerly of Casey Research, is now with GoldSilver.com, a place that suits him quite well. While the more things change, the more they stay the same, this time really is different. The political system has no ability to address and solve the current economic problems. In fact, the system is trying to do the opposite, by denying their existence and refusing to deal with existential issues. If that's not a reason to own gold and/or silver, then you need to rethink everything now.

- Source, FSN

Friday, August 11, 2017

Michael Pento interviews John Tamny: "Who Needs The FED?"


Michael Pento interview John Tamny. John is the Political Economy editor at Forbes, senior economic adviser to Toreador Research & Trading, editor of RealClearMarkets.com (RCM) and regular on Forbes on Fox. He just wrote a book "Who Needs the Fed". In this interview John offers a unique and fresh perspective on why the Fed is un-necessary – the conclusion being something he and I both agree on.

- Source, Pentonomics

Thursday, August 10, 2017

Bitcoin Buying Binge Continues, Tops $3400 For First Time As Fork Fears Subside

Bitcoin, and Bitcoin Cash, are both higher this morning as the former surges above $3400 for the first time.


Ethereum is also running higher as analysts predict a double for ether and $5000 Bitcoin price in 2018.


This morning's surge follows news over the weekend of a mysterious trader 'Spoofy' manipulating Bitcoin prices.


It is clear that post-Fork fears have now been erased:

“The miner-orchestrated hard fork has had limited traction and will not impact the price or future development of bitcoin,” said Aurelien Menant, chief executive officer of Gatecoin Ltd., a cryptocurrency exchange in Hong Kong, referring to the split.

“The activation of SegWit is a significant milestone in bitcoin’s technological evolution.”

As CoinTelegraph reports, Standpoint Research founder and analyst Ronnie Moas has previously projected that the digital currency Bitcoin will reach a price of $5,000 per token in 2018 and $50,000 in 10 years.

In his most recent interview with CNBC, he also claimed that rival currency Ethereum is also likely to increase by twofold to reach $400 during the year.

In his report published in late July 2017, Moas claimed that the cryptocurrencies will sustain their solid performance and steal some shares of other assets like stocks, bonds, fiat currencies and other precious metals in the market.

"I think investors should take a shot on this and hold for a few years. If you lose a few bucks, at least you took a shot," he said.

"In life, you miss every shot that you do not take. It will probably be more upsetting to watch it (from the sidelines) go up another 1,000 percent."

Aside from the two leading virtual currencies, Moas also forecast that the price of the digital currency Litecoin will increase by twofold to $80 per coin.

However, Bitcoin's teething troubles may not be over yet...

“The scaling debate is not over yet,” Menant added.

“The promised 2 MB block size increase due in November in accordance with the SegWit2x agreement may still be rejected by certain stakeholders.”

- Source, Zero Hedge

Wednesday, August 9, 2017

Peter Schiff and Max Keiser Bitcoin Drama


In this final episode of the Keiser Report from Freedom Fest in Las Vegas, Max and Stacy encounter Peter Schiff in the halls of the convention center and challenge him on bitcoin. Max continues his interview with bitcoin entrepreneur Charlie Shrem to discuss the latest drama and innovation in the cryptocurrency space.

- Source, Max Keiser

Tuesday, August 8, 2017

John Rubino: The Perfect Crash Indicator Is Flashing Red

What’s the last big toy you buy when things have been good for a really long time and you already have all the other toys? An RV, of course. A dubious thing to own if you already have a house, but when the good times seem likely to roll on forever, why the hell not?

And what’s the first thing you sell when you lose your job and your stocks are tanking? That very same RV. Which makes new RV sales a useful indicator of our place in the business cycle.

What does it say now? Here you go:


Notice the mini-spike in the late 1990s and the major spike in mid-2000s, both of which were followed by corrections. Now note the mega-spike from 2010 and 2016.

And how are things going so far this year? Well, the space is on fire:

‘The RV space is on fire’: Millennials expected to push sales to record highs (CNBC) – RV shipments are expected to surge to their highest level ever, according to a forecast from the Recreation Vehicle Industry Association. It would be the industry’s eighth consecutive year of gains.
Thor Industries and Winnebago Industries posted huge growth in their most recent earnings report.

Those shipments are accelerating, and should grow even more next year, the group said. Sales in the first quarter rose 11.7 percent from 2016.

Much of the growth can be attributed to strong sales of trailers, smaller units that can be towed behind an SUV or minivan, which dominate the RV market. The industry also is drawing in new customers.

As the economy has strengthened since the Great Recession, and consumer confidence improved, sales have picked up, said Kevin Broom, director of media relations for RVIA.

Two of the major players in the industry, Thor Industries and Winnebago Industries, both manufacturers of RVs, reported huge growth in their most recent earnings report. Thor saw sales skyrocket 56.9 percent to $2.02 billion fromlast year. Winnebago’s surged 75.1 percent last quarter to $476.4 million.

Gerrick Johnson, an analyst at BMO Capital Markets, attributed much of that growth to acquisitions. Thor bought Jayco, then the No. 3 player in the industry, last June; Winnebago bought Grand Design in October.

Thor stock has experienced strong growth over the past year of almost 40 percent. Winnebago tells an even better story: Its shares are up 56 percent over the past 12 months.

“They’ve done massively well because they’ve made massively creative acquisitions,” said Johnson. “Wall Street didn’t realize how creative those deals were. Each quarter they came through. The RV space is on fire, and the demand metrics are quite positive.”

What we have here is another classic short. During the past couple of recessions, RV stocks plunged as everyone came to their senses and stopped buying $60,000 motel rooms. Based on the above chart that’s a pretty good bet to repeat going forward. Let’s revisit this play in a couple of years.


Monday, August 7, 2017

US Dollar Hit AGAIN! Gold & Silver Higher. Stock Market Ripe To Fall.


After reviewing charts, discussing movement in charts and why they act the way they do I have been trying to bring some reason to the table for the past few days as it seems the “markets” may have reached a turning point. That is a dangerous statement because as most of you know and understand these “markets” are 100% rigged and the bullion banksters can move them around at will.

I wrote a couple of days ago that Thursday and Friday we needed to watch the action in several areas and pointing out several indicators that should be very positive for both gold and silver. Below is even more support for everything we have been saying since the first quarter of 2017. This should be a great year for the precious metals and now we are moving into the time of year when paper gold usually moves the most for the entire year!! Hold on tight as the next couple of months could be very exciting or they could be very ordinary. If history is any indicator we should be set up for a great autumn. Only time will tell.

The Federal Reserve Note (FRN) has been moving to the down side for several months and the past 24 hours is no different hitting a two year low...

- Source, Sprott Money

Friday, August 4, 2017

The Keiser Report: MAGA-nomics


In this episode of the Keiser Report’s annual Summer Solutions series, Max and Stacy talk to JP Sottile of Newsvandal.com about whether or not MAGAnomics will help make America Great Again. They discuss trade deals and automation: which has played more in making American jobs not so great. 

They also look at the role of opioid addiction and whether or not a universal basic income might help the likes of Mark Zuckerberg maintain monopoly-style control over the internet.


Wednesday, August 2, 2017

The Dynamics of a Riot - Jeff Thomas


In my lifetime, I’ve had the misfortune of being present in two major natural disasters and one violent social crisis. Each taught me valuable lessons.

In the aftermath of a natural disaster, there’s the danger of the loss of shelter, services and food. In most cases, people who experience the loss of shelter and services realise that “things are bad all around” and they tend to do the best they can, accepting that life will be hard for a period of time.

Food is a different matter. People, no matter how civilized, tend to panic if they become uncertain as to when they will next be able to eat. And, not surprisingly, this panic is exacerbated if they have dependents, particularly children who are saying, fearfully, “Daddy, I’m hungry.” As Henry Lewis said in 1906, “There are only nine meals between mankind and anarchy.” Quite so.

Intelligent, educated, otherwise-peaceful people can be driven to violence and even murder if the likelihood of future meals becomes uncertain. This has been the cause of spontaneous riots throughout history.

But this is not the only cause of riots. In the post 1960 period in the West, a new phenomenon has occurred that has steadily grown: governments and the halls of higher education have increasingly taught people that they are “entitled.” Governments have been guilty of this for millennia, beginning at least as early as the “bread and circuses” of ancient Rome. It’s a way for governments to get people to be dependent upon them and thereby to do their bidding. But, since the 1960’s, it’s become a systemic norm.

And it always ends in the same way. The false economy of “free stuff” eventually devolves into over-taxation and economic collapse. When it does, people are more likely to riot, as the entitlements are “owed” to them. In today’s world, however, this condition has peaked far beyond what the world has ever seen before.

Increasingly, those who are angry that the free stuff they are receiving is not enough to placate them, take to the streets. Typically, they throw rocks and Molotov cocktails, burn cars at random, destroy buildings and loot stores. All of this activity, of course, does not make it more likely that they will receive more free stuff from the authorities who presumably owe it to them. Instead, it victimizes those who have lived lawfully and with less dependence upon the state.

Riots occur for a great variety of reasons. The trigger can be something as absurd as in the 2011 Vancouver, Canada riot, in which locals became infuriated over the loss of a hockey game. Over 140 people were injured and over five million dollars in damage was done in a five–hour period. That last bit of information should be emphasized, as the fans had plenty of time to calm down after their team’s loss, but the rage, once ignited, became self-regenerating. This is one of the important dynamics of a riot that’s often overlooked. The riot, which may begin as a reaction to an event, becomes the event and is continued for its own sake.

In the same year, thousands of people rioted in London. The trigger was more serious this time – the shooting of a local man by a policeman. (Although the man had fired on police prior to being shot himself, this fact failed to deter rioters.) The riots, like most irrational retaliations, only served to cause more deaths and injuries. The riots lasted a full five days over a dozen London boroughs, then ignited further in a dozen other cities. Over £200 million in damages occurred and over 3400 crimes were logged.

There’s another dynamic that’s not revealed as it’s seen from the safety of our television screens and that is the spontaneity of a riot. For anyone who has lived through a riot, as I have, the lesson is an indelible one.

Riots, on occasion, are planned and, once they begin, there are occasions in which individuals capitalize on them (such as the riots in Ferguson Missouri, where hired rioters were bussed in). But, in most cases, they’re spontaneous. They begin as a reaction to pent-up anger. (In the Vancouver incident, the anger was building even before the hockey game had ended, but many riots, especially socially-related riots, are oftenthe result of many years of pent-up anger.)

The riot itself is generally a small spark that’s added to the existing anger and is often related to a specific event, such as the riots in US cities the night Martin Luther King was shot in 1968.

Once started, riots, for the most part, are entirely unplanned and rely on random acts of violence. Within minutes of the first violent act, entire neighbourhoods spontaneously ignite. As in the London riots, the same incident can spark off multiple riots, miles from each other.

A third often-misunderstood dynamic is uncontrolability. Police can race to the centre of a riot and, in some cases, quell the rioters, but, as the riot is not “organized,” the rioters have merely to stop whatever they’re doing and, for the moment, they cease to be participants. If police move on to other riot locations, the rioters who had been temporarily inactive could begin to riot again. Even if police are successful in quellingall violent activity in a neighbourhood, they could receive a radio call directing them to a new riot location, just blocks away.

In my own experience, new locations of violence erupting seemed to be going off all around the city, like popcorn. Before one could be quelled, others would pop up. The incidents were therefore, unstoppable by authorities.

Warfare has traditionally been approached from the standpoint that one army faces another and they fight until one surrenders. Guerilla warfare, however, has always proven unwinnable, as long as the guerillas are fighting on their home turf. Rioters have the same advantage as, say, an armed sheepherder in Afghanistan or a rice farmer in Viet Nam. The violence only ends when all rioters have decided they’ve had enough.

Of course we’d hope that rioters would learn from their crimes, but this is rarely the case. In the London riots of 2011, rioters burned down the local Sainsbury’s in their own neighbourhood. The next day, the same people were on the streets, in front of the television cameras, angrily stating that their grocery store was now gone and their children needed food. They demanded that the government truck in free food as an emergency measure and, not surprisingly, that’s what they got.

This is exemplary that, in every case, reason is abandoned and anger rules the day. No lessons are learned by the rioters. In fact, months later, rioters have often been quoted as saying, “We showed ‘em.”

So, what can we take away here? First, and most importantly, that riots are, by their very nature spontaneous, mindless and, for the most part, uncontrollable. Second, if an individual lives in or near a location where sociopolitical tension is on the increase, he is living in danger. The spontaneity of a riot means that he cannot prepare for it. If it arrives on his doorstep, or if he’s on the street at the time when it occurs, he may lose everything, including his life.

Since riots are mindless, rioters cannot be reasoned with. There’s no talking your way out of the danger, once it has reached you. Finally, as riots cannot effectively be controlled, the one and only defense against them is to conclude that, if one lives in an area where socioeconomic conditions indicate that the location (whether it be a neighbourhood or even an entire country) is an unsafe place in which to live, it may be time to move.

The key here is that the move occur before violence erupts. Once it has, it’s too late.

- Source, Jeff Thomas via Sprott Money

Tuesday, August 1, 2017

Ah, To Be A Fly On The Wall At The Next White House Staff Meeting - John Rubino


Just when you thought US politics couldn’t get any darker – what with the president openly musing about firing the attorney general who is investigating the president’s campaign – in comes new communications director Anthony Scaramucci, with a, ahem, unique critique of his new coworkers:

Scaramucci calls Priebus a ‘paranoid schizophrenic’(Fox News) – Anthony Scaramucci’s shocking, on-the-record tirade has blown the cover off long-simmering tensions between two of President Trump’s key men, prompting one White House worker to express safety concerns and triggering a countdown to the exit of either Scaramucci or his target, Trump Chief of Staff Reince Priebus.

Scaramucci, the newly minted White House communications director, set off a firestorm with a rambling rant loaded with expletives and threats that The New Yorker published. The coarse language directed at Priebus and White House Chief Strategist Steve Bannon, as well as blanket threats to fire people, left some inside the White House shaken.

“This is getting out of hand,” a White House staffer told Fox News. “I am honestly concerned for my safety in the office tomorrow. This type of behavior is unbelievable. Working in the White House, and something like that is said it’s a disgrace.”

Former Republican National Committee boss Priebus was left seemingly even more isolated in the aftermath. Scaramucci all but accused Priebus of media leaks, a recurring problem that has vexed the Trump administration. Other RNC colleagues brought into the administration have been nudged out of the West Wing, and Scaramucci’s hiring came with the rider that he reports directly to Trump – not Priebus.

Priebus has not reacted publicly to the broadside from his West Wing adversary, but it is hard to imagine the two co-existing in the administration after the public eruption of animosity. Scaramucci said after his tirade but before it was made public that any chance their relationship could be repaired was in the hands of the president.

Reince is a (expletive) paranoid schizophrenic, a paranoiac,” he told the New Yorker about the White House chief of staff.

Scaramucci also took a shot at Bannon.

“I’m not Steve Bannon, I’m not trying to suck my own (expletive),” Scaramucci said. “I’m not trying to build my own brand off the (expletive) strength of the president. I’m here to serve the country.”

At some point, these guys will find themselves sitting around the same conference table. If video of that meeting ever leaks it will break the Internet.

But why bother with tawdry political theater on a finance blog? Because you’d think the markets would be petrified by the prospect of a government paralyzed by this kind of infighting. Instead, stocks are at record levels and bonds are holding up nicely. What gives?

The Fed, that’s what. Under today’s New Age monetary regime, bad news anywhere is good news for financial asset prices because the world’s central banks, led by the Fed but abetted by the European Central Bank and Bank of Japan, stand ready to throw trillions of new dollars, euros and yen at whatever threatens to go wrong out there. And they’ll do it sooner rather than later. As ECB chair Mario Draghi put it recently they’re in “reactive” mode and won’t hesitate to hit “send” with cash infusions whenever the markets event hint at a downturn.

So by the dip and relax.

This is of course a recipe for disaster. But if you’re managing money and are being judged by quarterly results you don’t have the luxury of thinking long-term. The rest of us, though, should definitely be planning for the day the music ends and the big banks, index funds and hedgies try to leave the dance floor en masse.


- Source, John Rubino via Sprott Money

Monday, July 31, 2017

Silver BREAKOUT UNDERWAY NOW

What a difference a week makes. After struggling early on last week, after a hesitant Fed and a lip-sticky pig GDP estimate for the 2nd quarter, the silver price is breaking out here early Monday morning in the pre-market action. Rally possible as early as today. First there is this:


Silver solidly punched through and closed above the 50 day moving average on Friday. Today looks to be a gap-up at the open. Silver can break-out to the upside in a big way here!

Then, there’s the bullish performance and momentum since last Friday, as show in the 3 Minutre Chart:



Adding momentum to the rally could be the pandemonium and chaos caused by the Bitcoin hard fork tomorrow. Between suspended accounts and uncertainty, silver is set to shine brightly. Look to the price of gold for strong upside. On the 3 Minute chart, we can see gold’s gap up last week. The close was also solid last week, and, and gold has dutifully stepped up to the plate for its traditional “safe haven” role amidst all the uncertainty:


Last week most major market indexes hit new all-time highs last week. Seems harder and harder to go only up and up. Usually if someone keeps blowing air into a balloon, at a point it will pop. No graph needed, cause well, we have seen those new highs again and again and again.

Crude oil (WTI) is also on a strong, momentum filled rally since last Thursday. Oil is testing resistance at $50, so be looking for a move in black gold this week as well:


And finally, for the US dollar, things have not been looking good since last week, and with the strength in gold and silver, and the uncertainty in the cryptos, this is not looking good for the greenback. For now, it seems bullion is bid and the dollar is bust:


Looks like it is going to be a great week to be a silverbug!


Sunday, July 30, 2017

The Breakdown Before the Breakthrough

Since our last note, the US dollar index has made its way down to the lows of last summer, currently hovering just above the Brexit upside pivot from June 24th, 2016.

Although asset trends can elicit major technical breaks from oversold conditions (i.e. crash), the more probable outcome from our perspective favors another retracement bounce, before traders can set their sights on breaking through long-term underlying support that’s confined all declines in the dollar index over the past 3 years.

Maintaining a KISS approach of lower highs and lows that has served traders well this year in the US dollar index, we would look for the highs from early July to contain a prospective bounce. This methodology also applies to the flipside of momentum for potential lows in the euro, yen and gold – with the two latter assets also likely influenced by the short-term respective trends in equities and yields. In this respect, over the near-term the Japanese yen and gold could hold up better than the euro, as we suspect the rally in equities gives back this months gains – largely supporting the uptrend in long-term Treasuries and buttressing safe haven assets like the yen and gold.

From a comparative perspective with the pattern breakdown in the dollar index that has closely resembled the complex and broad top carved in gold between 2011-2013, a near-term bounce in the dollar would develop before the index breaks through long-term underlying support later this year. Anecdotally, considering current pessimism towards the dollar, the pattern similarity should continue.


When we look back at the cyclical top in the US dollar index in 2002 that corresponded with a secular breakout in gold, the similarities extend with today in pattern and proportion, as well as from an intermarket perspective where long-term yields were at a positive correlation extreme with the dollar and turned down again with the dollar’s cyclical pivot. The net effect broke gold and the broader commodity complex out of a secular downturn, as declining real yields helped tilt the scales in commodities favor.


Although we are less inclined to presume long-term yields will materially break below the lows from last year as they did coming into 2003, we still believe there is much greater upside reach for the current inflationary trend – than the Fed’s capacity to raise rates. This is largely because we expect the current expansion will diminish the Fed’s appetite to tighten as it continues to mature. All things considered, real yields should continue to decline, even if the downside range of long-term Treasury yields is limited.


Looking back at our month-over-month comparative from the secular peak in the 10-year yield, the relative symmetry of the decline continues with yields basically at their respective mirror of the mid 1940’s. While the linear regression of the current retracement is tracking shallower than the secular build from the previous cycle low in the 1940’s, over the next year we see a declining dollar eventually capping the downside in nominal yields as realized inflation begins to surprise again to the upside.

Saturday, July 29, 2017

Why The Inflation Rate Is A Worry For The Federal Reserve

This is a story of what is not happening in the economy. What's not happening is inflation. You would expect a little bit more than there is given that there have been low interest rates for years, and there's a bit of economic growth. This is of interest to David Wessel, who is director of the Hutchins Center at the Brookings Institution, contributing correspondent to The Wall Street Journal and a regular guest here. Hi, David.

DAVID WESSEL: Good morning.

INSKEEP: OK, so it's not that there's no inflation, right?

WESSEL: Right. Basically, the Fed's favorite inflation measure shows that prices of all sorts have risen by only 1.4 percent over the past year. That's shy of their 2 percent target. And they've been shy of that target for much of the past decade. Now, a few months ago, as unemployment came down, inflation seemed to be creeping up. But lately, it's been a surprise. We have unemployment at a 16-year low. And the inflation rate has actually been coming down, not up. So that's both a surprise, and it's become a worry at the Federal Reserve.

INSKEEP: Why worry? Isn't low inflation good?

WESSEL: Well, look, first of all, you have to remember that every price you pay is someone else's income. So what the Fed is talking about is not just getting the prices you pay up but getting incomes and wages up more rapidly. But secondly, there's some economic problems with too little inflation.

One of them is this. When there's very little expected inflation, interest rates are very low - the ones in the markets. And when interest rates are very low, the Fed doesn't have much maneuvering room. If a recession hits, and it wants to cut interest rates to give the economy a boost, they don't really have much cushion to get the economy going again if we hit hard times.

INSKEEP: Why would the Fed raise interest rates, which is something you do to fight inflation, if there's hardly any inflation?

WESSEL: Great question. Look, many - not all, but many Fed officials figured that the last few months are an aberration. With unemployment so low and the economy doing better, there's just some temporary factors that are distorting the numbers. And so they basically say inflation is around the corner. Here's how Janet Yellen explained it in a recent congressional hearing.

(SOUNDBITE OF ARCHIVED RECORDING)

JANET YELLEN: I do believe that part of the weakness is (ph) - inflation represents transitory factors, but we'll recognize inflation has been running under our 2 percent objective, that there could be more going on there.

INSKEEP: OK, what's the theory that there could be more going on there?

WESSEL: Well, one possibility is that the economy isn't nearly as close to full employment as the experts say - that there were enough people on the sidelines of the economy, who are now starting to look for work, that employers still don't have to give very many wage increases. Another one is that the economy has kind of changed some way. Maybe it's more competition from Amazon, weaker unions, the impact of globalization - something that just makes it harder to get wages and prices going up.

This is a global phenomenon. The European Central Bank has been frustrated that inflation there has been so stubbornly low. And the Bank of Japan has done everything that anybody could ever think of to get inflation up. It's managed to get prices rising at 0.5 percent a year. And it now says it doesn't expect to meet its 2 percent target until the year 2020.

INSKEEP: Well, David, now, we're getting to a subject that I know has been of great concern to you over the years - wage stagnation. I think what you're telling me is that it's possible that very low inflation, which sounds like a good thing, is just a symptom of stagnant wages continuing, which is a very bad thing.

WESSEL: Yes, when we talk about wage stagnation, we usually mean inflation-adjusted wages. But you're right. This is a symptom of an economy that just doesn't seem to have much zip.

INSKEEP: David Wessel nearly always has zip when he comes by. He's with the Hutchins Center at the Brookings Institution and The Wall Street Journal. David, thanks.

WESSEL: You're welcome.

- Source, NPR

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