By Michael Pento 

Dr. Martin Feldstein, who is a Harvard University professor and President of the National Bureau of Economic Research, said during an interview on a financial TV Network that the greatest accomplishment of the Fed was that it "made the U.S. dollar more competitive on international markets." In other words this professor of economics at one of America's most prestigious universities is lauding the fact that the USD has declined precipitously against our major trading partners. He further went on to boast that it is the very fact that our currency has been so weak that has saved us from a deep recession and allowed the US to report positive GDP numbers. His state of optimism centered on the fact that U.S. exports were increasing due to the cheapness of the dollar.

The belief that economic growth can be produced on the back of falling currency pervades Wall St. and Washington D.C. at this time. While it is true that a weak currency tends to boost exports, it neither boosts growth nor improves trade deficits. For an example, look at the USD vs. the Renminbi. The USD has declined 18.21% vs. the Renminbi since the removal of the peg in July of 2005. Yet the trade deficit with China has increased to $256 billion in 2007 from $201 billion in 2005. All the while Chinese GDP has soared while America's has stagnated.

This sophomoric reasoning shows a complete lack of understanding of what engenders economic growth. As I stated on CNBC's Kudlow and Co. last week, economic growth results from low taxes, low interest rates, low inflation and an unfettered free market. The paths of those key economic conditions are currently all going in the wrong direction. However, investors are choosing to ignore future tax increases (Bush tax cuts sun set in 2010), ramping inflation and a plethora of free market busting directives from Washington. They are instead putting their faith in the Fed. As to what the Fed can accomplish let me be clear. The only thing the Fed can do is print more money. Unfortunately for the Fed, the "P" in G.D.P. stands for Product not Printing. Growth is not measured by the annual rate of change in the amount of money printed but rather the change in total output of goods and services.

According to that philosophy which is also held by Dr. Bernanke, the world's most prosperous economy should now be Zimbabwe. After all, the Central Bank of that country has provided ample liquidity to stimulate the economy. In fact, the central bank's governor Gideon Gono has provided enough stimuli to send inflation to 164,900% (Official CSO) in February of 2008. No one is arguing that Mr. Gono reacted too slowly in his decision to cut interest rates. And no one is celebrating the fact that the Zimbabwe central bank is "now on the case" to combat slowing growth and a weakening economy.

If monetary growth was able to promote economic growth, Zimbabwe's economy would be soaring. Instead, we find an unemployment rate of 85% and a nominal G.D.P. rate of -5.7% in 2007 and -3.6% (IMF estimate) in 2008. But the current economic mess was not always the case in this country. During the rule of Robert Mugabe since 1980, the country has gone from one of Africa's finest examples of economic prosperity to having the highest inflation rate and lowest real GDP on the planet.

The facts are that as long there is enough new money created to satisfy the increases in work force and productivity growth the economy will remain in balance. Monetary growth rates are now light years ahead of that level. Every unit of currency created above the intrinsic demand level will lead to higher prices. New money created is the definition of inflation. Higher prices of goods and services ensue when the amount of money creation outstrips the supply of goods and services in an economy.

The biggest lie ever perpetrated on the investing public by the Fed is that printing money can spur economic growth. It never has and it never will. Never in the history of economics has a country been able to become prosperous by devaluing its currency. Why we are trying it in America is beyond my comprehension. I'm sure the citizens of Zimbabwe scoffed at the notion that their once prosperous country could ever share the fate of Weimar Germany. And I'm equally convinced that most investors will chuckle at the mere suggestion that we are going down the same path here in the United States.

The current U.S. national debt is $9.44 trillion. Looking forward to the coming deficits that face this country, we have projected deficit of $59 trillion. It is clear that the Fed will be forced to monetize the debt away as it is impossible to either tax or grow our way out of the situation. There is good evidence for reaching that conclusion based on the actions being taken today to clear up a comparatively minor crisis in the housing market. Instead of allowing free markets to work and to reconcile the imbalances created by the asset bubble, we have decided to debase the USD until home values stop declining. Investors that prepare now for the coming inflation cycle will fare much better than those who chose to believe it can never happen here in the USA.