President Obama has nominated Janet Yellen to be the Vice-Chairman of the Federal Reserve. I'm shocked....okay that was facetious.  I am totally unsurprised, as Yellen is a believer in the "all in" approach to monetary policy.  This means she wants to continue pumping money and "reflating" the economy. 

Oh joy.

Now what this means in plain English is that the Federal Reserve has two missions: To keep inflation under control and to keep unemployment down.  They do this by controlling the money supply.  Since inflation is simply too much money chasing too few goods (think of a sponge soaking up excess water and you will understand why too much money- the water- is soaked up by the sponge-higher prices for goods and services) and since our money is nothing more than pieces of paper backed by the promise of the federal government that it is worth something (based on what I don't know and neither does anyone else) printing too much of it is a very bad thing.  Inflation means that every day your money buys less which gives all of us an incentive to get rid of it by spending it before it buys less.  This means less money saved and more money blown.  This is why inflation is a bad thing.  It destroys the future for the present and the more inflation there is, the closer and closer the destroyed future gets.

On the other hand the Federal Reserve is supposed to keep unemployment down.  The thought is that more easy money to business and government will translate into more jobs and growth.  So far, you would have to say it is not working under the current plan, but the answer given to this observation by those who support current Fed policy is that unemployment is something called a "lagging indicator".  This means that it is the last thing to get better in a recovery.

 Maybe.

My question is what happens when unemployment doesn't go down fast enough to justify turning off the printing presses before inflation sets in?  The answer to that comes from a silly theory called the Phillip's Curve.   This principal says it is actually employment that drives inflation more so than money supply.  Believers in this principle think that only full employment puts pressure on wages and thereby drives up prices, as employers have to raise prices to pay the wages.  This is nonsense, of course, because labor can be outsourced and technology improves productivity - so much that labor is less of a factor in prices than other things like the cost of materials and energy that are affected by, you guessed it, printing too much damn money!

So going back to Janet Yellen, distinguished academic as are pretty much all of Obama's appointments, she is a believer in this "let's go for it" keeping of the printing presses putting out paper money at an unbelievable pace unlike anything we have seen in our history - EVER! 

Get ready folks, here comes an old friend from the 1970s, Stagflation meaning a dead economy and lots of higher prices at the same time.  It isn't supposed to be possible but it has happened before so it most certainly is.  I could go on and on but the stars are lining up for more trouble and in a big way.  Keep converting that cash to gold.  It is your only protection.