If Ben Allows Interest Rates to Rise....
If Ben Bernanke allows Interest rates to rise, then the 'debt service payments' on America's national debt will rise.
Thus he is hiding the true inflation figures via the loophole in the cpi. Cpi doesn't report food & energy inflation. This is enabling him to tell the world that inflation is low (current official reported USA headline cpi around 2%). Shadowstats reports that true inflation is in the range of 8-9%.
As an example, if Interest rates were to be raised form the current 0.25% to 6% then the yearly national debt service bill would touch 1 trillion. Assuming the national debt is around 16-17 trillion.
The yearly current account deficit is around 1.x trillion. Imagine if another 1 trillion (of above mentioned) debt service payment was added to this ? It would mean a complete destruction of credibility of the US Dollar and Hyperinflation would ensue. (Maybe it has already, as such 70% of US Treasuries are purchased by the FED alone, not foreigners).
If he doesn't hide the true inflation, and willingly discloses the truth, then he has to INCREASE INTEREST RATES and bring about a Deflationary DEPRESSION. Also we know that Deflation always ends in Hyperinflation as Confidence in the government & currency fails.
How long has Ben decided to hide the true inflation? Americans know that everything is getting more and more expensive. (Remember, there is no Glass Steagal-Volcker Rule restriction, so QE money is within banking system, and being used for speculation in commodity markets). Also China is aggravating inflation by secretly hedging its colossal US$ exposure, and has already hedged 50% of its reserves into Hard Assets (commodities, gold, resource based investments). In such a time of high inflation, who would park money in Extremely low yielding Treasury Bonds of USA?
If Ben keeps hiding this fact and lets rates remain low for longer, then inflation will explode into hyperinflation. It will become crystal clear to everyone that inflation has now become 'RUNAWAY', and the masses will start hoarding essentials so as to maintain purchasing power of their money. They will detest cash. Velocity of money will skyrocket!
Its a matter of how long he can keep things in stalemate, as the real inflation time-bomb is soon going to explode.
Will he choose Hyperinflation willingly or not, is the question in our minds !!
Disclosure: I am long GLD.
Additional disclosure: gld = physical gold. (not etf Gld)