The Fed's inflation 'solution'

If you think you haven't been paying high enough prices, you're in luck. Some Federal Reserve officials agree with you.

By Bill_Fleckenstein Aug 10, 2012 2:05PM

Image: Inflation © Nick Koudis, Getty ImagesProminent articles in The Wall Street Journal and The New York Times on Tuesday discussed interviews given Monday by the head of the Federal Reserve Bank of Boston, Eric Rosengren, and they naturally goosed the market while also getting under my skin.


For one, the articles made it painfully obvious that Rosengren is a central planner at heart. If he had his way, he would unleash as much money as it took to force the economy to deliver the lower job and higher inflation rates he wants:


"You continue to do it (print money, monetize debt)  until you have documented evidence that you are getting growth in income and the employment rate consistent with your economic goals . . . . For the first seven months we've been treading water. That's different from what we expected at the beginning of the year," Rosengren said.


I think I speak for everyone here?

Now we get to the really insidious portion of his comments: "The one thing I think all economists agree on is that the Fed should be able to have an impact on inflation . . . . We're missing on the inflation target. I think all economists would agree that we should take action to get back to the inflation target."


His proposal to do that would basically be to have inflation/employment rate targeting, where the Fed would have open-ended asset buying programs (aka, quantitative easing), which has the bank buying assets to pump money into the economy) until the desired rates were achieved.


What is really disturbing about his views -- albeit not surprising, I'm sorry to say -- is that, once again, we see that no lessons have been learned. The Fed is the epicenter of the financial disaster and ruined lives that have become the America of the past decade or so, and yet no one there can see it.


During the first equity bubble, I used to comment a lot on the fact that while we were in the midst of a stock mania, and even while there were regular articles about how Japan was struggling as it wrestled with the aftermath of the very same thing, there was almost no recognition of the bubble in America, let alone the consequences that would follow.


Similarly, during the real-estate bubble I was mystified to see people behave even more recklessly than they had in the late 1990s, even though they still had the scars from that experience.


He's not speaking for me

Now we have the Fed advocating that we pursue the same insane policies that have been the source of our economic ills -- as I noted earlier and have protested repeatedly for 17 years,. Does anyone in America really think that the inflation rate isn't high enough? Don't we all want lower prices?


It is just insane that the Fed (or its supporters) has a shred of credibility left. Historians are going to look back on this period and say people were literally out of their minds to fall all over themselves buying government paper -- bonds -- when nominal (and actual) rates were negative and while the Fed (and every other central bank) was intent on creating even more inflation.


As great of an opportunity as the early 1980s were for stocks and bonds, due to the valuations and the policies in place, this is an even more absurd "opportunity."  However, it's not anywhere near as easy to capture; shorting bonds or making investments predicated on inflation is not as easy as just locking up long-term Treasurys at 12%-plus and letting Paul Volcker  and compounding work their magic.


Just put us into our misery

Nevertheless, Rosengren's interview spree is a good look into the "mind" of the easy-money "doves" at the Fed. Though it pains me, and I know it is perverse, I continue to advocate that the Fed just hurry up and do what it's going to do so the bond and currency markets can revolt and the country will hopefully be forced to pursue sane policies. The reason I am willing to do that is because I know they are going to be irresponsible, and I know that will lead to more trouble, but it will be the kind of trouble we actually need. Only by pursuing these policies to their absurd conclusions can we put an end to them.


I made the mistake from 1995 to 2000 of continually expecting the Fed (in the form of Alan Greenspan) to do the right thing. I was not only disappointed, but it cost me a good deal of money for a time. However, I learned that just because these fellows are in positions of power doesn't mean that they are either smart or inclined to do what is right.


A better future through fewer options

As I have chronicled more times than I care to count, the people who run the Fed and other central banks are more apt to pursue the wrong policies than anything else. One has to know what one is up against. In this case, the people who have the incredible power that printing money bestows have no understanding of history and have shown irresponsibility that would be criminal in other contexts. While we all might wish that weren't the case, unfortunately it is. Thus, we must understand what they are going to do and prepare ourselves for those policies and their consequences.


The silver lining is that I think (and hope) that we are in the late stages of centrally planned money printing, and when that ends, sane policies will be forced upon us by the world's currency and bond markets. Then we can get back to rooting for the right thing, instead of the wrong thing as a means to a right end.


Aug 11, 2012 11:05PM
Ron Paul HR459 audit the fed has passed the house. Harry Reid won't allow the senate to vote on audit the fed. Harry Reid can be seen in the past on youtube saying we need to audit the fed. Now he won't support or bring the bill up for vote. Democrats and Republicans please email your representatives in the senate to have them support this legislation. They divide us to conquer us.
Aug 10, 2012 7:35PM
This article points to ignorant people set to influence monetary policy of folly.  Mr. Fleckenstein is on the number.  Further QE of a magnetude needed is huge, and our magnum sized debt will and has caused huge pain.  Savers are being robbed by current inflation and insanely low interest, I used to have a $1M savings pot....its reduced in value by 25% in the last 3 years.  Obviously the Fed has run out of tricks and the duping of America has begun. 
Aug 10, 2012 7:12PM
I normally don't agree with Fleckenstein on his articles, but he's spot on with this one. The Fed needs to be taken out of commission, PERMANENTLY. They're at the root of all the economic problems.
Aug 12, 2012 12:02AM
 Let's all be honest here the Fed is run by people who still think that banking and Wall Street run the whole of this great country.

 Until this whole "Too big to fail" mythology is put to rest  and only companies who actually produce "real" goods here get bailouts such as our car industry then the Fed and their backers like BOA will continue to help themselves to every penny they can screw out of investors!

 I would point to the recent Facebook IPO as proof of this as the only people who profited were the 1%ers and their friends.  The small investors got royally screwed while those in the know cashed in at our expense.

 It's long past time CEO's were held personally responsible.  I'll use "Citizens United" own argument that they used to justify super pacs against them here.  If a company is a person too then those companies execs are 100% responsible for any fraud or misconduct committed by the company!

Aug 10, 2012 11:43PM
My distrust of the Fed has risen to the point, that I now think it is very likely that they are heavily invested in stocks, as well.  No one really can verify what they are holding.  There is no transparency in our government, or on Wall Street.  Public or private, they are drunk with power as they now know that they are very unlikely to be held accountable for their actions, and even more unlikely that they will be caught and their crimes publicly admitted.
Aug 11, 2012 3:15PM
Your still hoping that the Government will do the right thing.  I gave up long ago.  I don't know what's worse, Government or Big Business.  Not sure who works for who.  Things won't change until (we the people) stop spending money we don't have and buy products we don't  need.  If everyone stopped using credit cards period, even if you pay off the balance every month, the Government and the credit card companies would get the message loud and clear.  Only then will things change.  Only then will we have a  'Solution'.
Aug 13, 2012 10:54AM
IDK and ME

Finally someone who understands!! Inflation is a hidden tax caused by a devalued dollar. In the 1950s gasoline cost something like .25 cents a gallon. It still is, except you need a silver quarter(remember those) to adjust for the devaluation of the dollar which has lost 97% of its power since the Fed came into existence in 1913. The diluting of the money supply (stimulus) are the root of inflation. Central banking is a Marxist ideology, folks!! It is the 5th plank in Karl Marx's Communist Manifesto, look it up. It is NOT a free market enterprise or Capitalist theme. The Fed is a banking cartel, there is nothing Federal about it and it has no reserves. It appoints members not elect them. It is immune from audits and constitutional enforcement. It practices fractional reserve banking a Ponzi scheme onto itself. Wow! I can't believe how many people on this discussion are so naive and dumb about the Fed's true identity.

Aug 12, 2012 2:44AM
Prices go up people have less to spend, and then where we are at; hyperinflation? Google germany hyperiflation 30's.They had piles of marks to buy a loaf of bread. You tube has some good videos America's economic collapse but watch where they end up going they might be trying to sell something. I believe this is being orchastrated to collapse the dollar lots of signs agree and social engineering with it. Google 19 reasons why the the federal reserve is at the heart of our economic problems. The federal reserve is the head of the US banking cartel and largest debt creator.
Aug 12, 2012 7:40PM
I don't normally agree with Fleckstein, but this time I do.    Greenspan & co were a major cause of the 2008 Recession.   The same folks are flooding the market with new printing press cash and it will had a devastating effect on our US dollar via rising inflation, especially in commodities.    If you are in bond funds, be very alert at all times.  Keep your bond terms short--less than 6 years or so, or even shorter.  Be ready to sell them all when its finally the US's turn to be Greece.
Aug 12, 2012 8:09AM
Nice article by Bill Fleckenstein. Too many people when they realize they going to die want to make things right but it is too late. You are what you are in this temporary life on earth. Money & greed are needed to exposed those who are less than truthful & honest. Their is tomorrow for most to stand by their promises made. It would have been good to have fixed housing first. It would have helped the common working person but it must be low on the list for elected public servants. Printing too much money and lowering buying power for those who need it most has been a problem. People need self worth more than charity to shut them up and get a vote.
Aug 12, 2012 5:11PM

The Fed is brain dead. The only thing QE has done is to raise stock prices. No economic or job growth.

They think this artficial wealth effect will increase aggregate demand. However most people have very little money in the stock market. The people that are selling at these high prices are deleveraging or using the money to pay for ever increasing food and fuel prices which the Fed has created. The only ones to benefit from Fed policies are the top 0.01% (i.e. primary dealers).

Aug 10, 2012 8:11PM
Shoveling money into the economy (aka 'quantitative easing' aka keynesian economics) merely creates athe chimera of improvement.  It will only work if people believe it.  Instead, the middle class look around, see the REAL unemployment rate (irrespective of how the dims have finagled the numbers) and hunker down with their money.  The "wealthy" are clearly opting out of the dims smoke-and-mirrors.  AND, if the idiots persist and reelect this idiot, our money will stay (and go further) offshore - taking even more jobs and growth with it. 
Aug 12, 2012 1:15PM
Bill, good article!  Government 'IS BIG' business (and we the people vote on it), and the Fed is part of the machinery that grinds out results.  Looking at the government's business results the past twenty years shows === loaf of bread (inflated), energy (inflated), taxes at local & State levels (inflated), posture of politician's policies (inflated), and  global currencies(inflated).  Paying off debts (deflated) into the future.  Yikes!
Aug 13, 2012 12:53AM
Bill, the Fed isn't the only problem. Corruption (politically and in banking) are the other side of the coin and a much bigger problem. From the fraudulently manipulated LIBOR to the outright theft of funds (MF Global). These actions threaten the integrity of the market and are the real reason for the malaise in the economy. Left unchecked they will ultimately lead to its complete collapse. Until criminal banksters and politicians are put behind bars the only growth industry left in America will be fraud.
Aug 10, 2012 5:11PM
You are correct as to the assumption that all must fall before a light bulb will come on and finally show
us where we are! In the "Sty" with the pigs groveling for their food!
This has been proven over and over in secular history and religious history.
When will we ever learn that "Education" or "Power" does not equal WISDOM!! Resp a Serferdude!

Aug 12, 2012 8:09AM
Aug 10, 2012 7:18PM

I used to think you were crazy but since 07 I think you are right. The bag of tricks is running out.  Anyone who has a bond fund please beware a huge fall in NAVs has to happen.Everything is way overpriced due to Fed Policy. This is the next bubble to burst. Keep your cash on the side or buy some metals then get back into bonds after the crash. That is if anything is left.

The Govt is not the problem. Greed running rampant is the problem. Big Corporates wanting a fast bigger return thru govt guaranteed mtgs, corporates who want bigger tax cuts and breaks while hiring less and paying less so they have bigger bottom lines coming in, and the Govt has a bunch rich spoiled brats doing the same dinner parties with the filthy rich and scratching the greedy rich backs while padding their own lives.  All the while, the working man has less, pays more is being devastated and the number living in poverty quadruples. Do they care? Of course not. The only way they would care is if they were brought down to live like that. No jobs, increase welfare, etc. Your choices: Vote Repub and get radical religious nutcase who wants to cut taxes for the filthy rich and the working man pay for it all, OR vote Democrat and get Socialism Poverty run rampant while turning their heads and extending the same tax cuts for the filthy rich and a few left in the middle class to work and slave to death to pay for the system. VOTE THIRD PARTY! Wake up folks, all of the third party candidates are looking better and better everyday. Make a true chg!!!
Aug 12, 2012 1:59PM

What is the most unproductive expenditures in the America's Budget?  War.  War is not productive to a nation.  Any nation. And for America to be fighting all these senseless wars has destroy the economic system of America.


Aug 12, 2012 1:29AM
I suppose this makes sense considering the number of people who managed not to lose their homes in the last free money giveaway.  Maybe we  present a real threat to whatever the plan was when the banks had to reorganize their assets and merge into  a giant funnel to receive  their fair share of the bailouts.  Money that was supposed to be used to recover a flagging economy ?  The only flags we saw were on the plays of CEO bonus checks.  By the  time that  dust settled the supposedly returned funds were invested in .....?   Well i don't know either , but i wonder how much of it went where it was supposed to go?  Families living in tent cities and others still sleeping  in their cars would probably be interested to hear  the answer to that one too.   Now you tell us it will get worse and we should just stand back and let it get there so the ones calling the plays will get it out of their systems?   Well , i would like to know if they plan on selling popcorn for the show ?
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
100 character limit
Are you sure you want to delete this comment?


Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.


Image: Bill Fleckenstein, MSN money

This column is a synopsis of Bill Fleckenstein's daily column on his website,, which he's been writing on the Internet since 1996. Click here to find Fleckenstein's most recent articles.



Quotes delayed at least 15 min
Sponsored by:


There’s a problem getting this information right now. Please try again later.
There’s a problem getting this information right now. Please try again later.
Market index data delayed by 15 minutes

[BRIEFING.COM] Equity indices extended this week's losses with a broad-based retreat. The S&P 500 fell 0.6% to end the week lower by 1.1%, while the Russell 2000 (-1.1%) finished with a 0.9% decline since last Friday.

Staying true to the theme observed throughout the week, the energy sector (-1.5%) tumbled out of the gate, thus dragging the broader market down with it. Once again, dollar strength and crude oil weakness contributed to sector's underperformance, but the ... More


There’s a problem getting this information right now. Please try again later.




MSN Mobile: Go to in your phone's browser.