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April 10, 2012 at 10:07 AM
The recovery is an iffy thing, according to Axel Merk, president and CIO of Merk Investments. As Federal Reserve Chairman Ben Bernanke keeps interest rates low to combat the possibility of a depression, says Merk, he’s inviting inflation—which may not be as easy to fight as Bernanke may believe.
In his latest Insight newsletter, Merk says that the deleveraging that followed a period of extraordinary leverage has led to a “money creation process” that has taken on “a life of its own.” Calling the current apparent trend toward recovery “the latest chapter in the tug of war between inflationary and deflationary forces,” Merk says that Bernanke’s present policy of maintaining low interest rates lest the market be spooked into a full-scale depression is erring on the side of inflation, in a mistaken belief that inflation is easier to control than it actually is.
“The extraordinary policies that have been pursued,” says Merk, “have not only planted the seeds of inflation, but have reintroduced leverage into the system.” Not only that, he says, but there is too much leverage now to be able to combat inflation as readily as Bernanke hopes.
