Wednesday, July 30, 2014

Fed's Easing Will Spark Inflation

by JASmius

Something a lot of us have been saying for - what?  The past five and a half years?  Sooner or later, when you have gushers more currency chasing around a stagnant or declining quantity of goods and services, higher prices have to be the result.  It didn't happen right away because, absent an economic shock, it takes time to ramp up upward general price momentum.  It took fifteen years for the inflationary spiral that LBJ's Great Society and the Fed's accompanying easy money policy ignited to goad the CPI and interest rates to double-digit levels, and a severe recession (which the monetary "fever" had been masking - sound familiar?) to bring them back down and under control, preparing the way for genuine supply side-driven growth.  Even the classic example of the 1923 Weimar hyperinflation, inflicted on post-World War I Germany by the Treaty of Versailles reparation requirements and Kaiser Wilhelm II's earlier decision to finance the war entirely by massive borrowing (again, sound familiar?), took several years to fully manifest itself.

Which ought to provide some historical perspective to the fact that U.S. inflation, dormant for over thirty years, has begun to reawaken after only five and a half years of Obama-driven monetary stimulation:

Inflation hawks warn that the Federal Reserve's massive stimulus program will accelerate price increases, and independent economist Bob Brusca says they're right.

The Fed has left its federal funds rate target at a record low of zero to 0.25% since December 2008. And its balance sheet has mushroomed to $4.4 trillion through quantitative easing.

"The Fed's balance sheet is huge," Brusca told CNBC. "I think they kept interest rates very low for a very long period of time."

The central bank probably won't recognize the inflation threat until it's too late, he said. "They think there's a lot of slack, and therefore when bad things happen, they don't believe it. And that's the problem. When bad things happen you have to believe it."

Again, preserving the value and integrity of the dollar is no longer the Fed's mission or Janet "Old" Yellen's job description.  Her mission is to keep the Obama Depression hidden from the public's collective consciousness and to keep "buying" federal debt to keep O's fiscal crazy train careening down the tracks completely out of control.  Or "shoveling wastepaper from one pile into another pile" to put it more colloquially, all to maintain the fiction that we're not broke and teetering on the edge of a catastrophic fiscal/economic implosion that will bring down the government, the country, and the global economy at a time when the geopolitical stage is already aflame.

Sounds like the ultimate crisis, doesn't it?

I'll ask again (at the risk of infringing on Samuel L. Jackson's Capitol One gimmick): Still think Barack Obama is "in over his head"?

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