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.
Prominent 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.
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!
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.
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).
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!
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.
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.
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ABOUT BILL FLECKENSTEIN
This column is a synopsis of Bill Fleckenstein's daily column on his website, FleckensteinCapital.com, which he's been writing on the Internet since 1996. Click here to find Fleckenstein's most recent articles.
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Our own funding crisis could very well be precipitated by trouble elsewhere. And there are signs that Japan's bond market may be rejecting the nation's monetary policy.
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