The emperor took off all his clothes, and the swindlers pretended to dress him, piece by piece, with the new ones that were to be fitted. Then the emperor turned and looked into the mirror.
“Goodness, they suit you well! What a wonderful fit!” they all said. “What a pattern! What colors! Such luxurious clothes!” “Yes, I am ready!” said the emperor. “Don’t they fit well?” He turned once again toward the mirror, because it had to appear as though he were admiring himself in all his glory.
The emperor walked in the procession, and all the people in the street and in their windows said, “Goodness, the emperor’s new clothes are incomparable! What a perfect fit!” No one wanted it to be noticed that he could see nothing, for then it would be said that he was unfit for his position or that he was stupid. None of the emperor’s clothes had ever before received such praise.
“But he doesn’t have anything on!” said a small child. “Good Lord, let us hear the voice of an innocent child!” said the father, and whispered to another what the child had said. “A small child said that he doesn’t have anything on!” Finally everyone was saying, “He doesn’t have anything on!”
The emperor shuddered, for he knew that they were right, but he thought, “The procession must go on!” He carried himself even more proudly but that did not last too long before he was laughed off the street together with his entourage!
We liken the Emperor to the US Treasury, and perhaps Mr Bernanke, and the Emperor’s clothes to the repeated denial that inflation pressures exist or are likely to develop over the coming months by advisors and members of the deflationist camp.
We believe that the evidence of developing inflationary forces are just as plain as the lack of clothes on the Emperor. Precious and industrial metals are at multi-week highs against paper currencies, inflationary protected securities are outperforming non inflationary protected securities and even real estate prices are starting to pick-up, the Obama admin has been running unprecedented deficits and is forecast to run deficits not witnessed in modern times and all this deficit is being financed from the printing press.
Just how the cost of raising debt has not risen dramatically over the last 6 months is totally beyond our comprehension! Now where is that small child?
