from EuroPac Website
The Federal Reserve is Now 100% Committed
to The Destruction of The Dollar
By upping the ante once again in its gamble to revive the lethargic economy through monetary action, the Federal Reserve's Open Market Committee is now compelling the rest of us to buy into a game that we may not be able to afford.
At his press conference this week, FED Chairman
Bernanke explained how the easiest policy stance in FED history has
just gotten that much easier. First it gave us zero interest rates, then QEs
I and II, Operation Twist, and finally "unlimited" QE3.
Although their new policies will create numerous
long-term challenges for the economy, the biggest near-term challenge for
the FED will be how to keep the momentum going by upping the ante even
higher their next meeting.
In addition to its ongoing $40 billion per month of mortgage backed securities (to stimulate housing), it will now buy $45 billion per month of Treasury debt. The latter program replaces Operation Twist, which had used proceeds from the sales of short-term treasuries to finance the purchase of longer yielding paper.
The problem is the FED has already blown through
its short-term inventory, so the new buying will be pure balance sheet
By committing to tightening policy if either
unemployment falls below 6.5% or if inflation goes higher than 2.5%,
Bernanke is likely looking to silence fears that the FED will stay too
loose for too long. While these statistical benchmarks would be too
accommodative even if they were rigidly enforced, the goalposts have been
specifically designed to be completely movable, and hence essentially
It is widely known that a good portion of unemployment declines since 2009 have resulted from the many millions of formerly employed Americans who have dropped out of the workforce. But like many other economists, Bernanke failed to identify where he thinks "real" employment is now after factoring out these workers.
So how far down will the unemployment number
have to drift before the Fed's triggering mechanism is tripped? No one
knows, and that is exactly how the FED wants it.
Bernanke stated that he will look past current inflation statistics and look primarily at "core inflation expectations." In other words, he is not interested in data that can be demonstrably shown but on much more amorphous forecasts of other economists who have drunk the Fed's Kool-Aid.
He also made clear that rising food or energy
prices will never fall into the Fed's radar screen of inflation dangers.
In his press conference, he made it clear that
the FED will avoid looking at price changes in "globally traded
commodities," that are all highly influenced by inflation.
their track record in forecasting the events of the last decade has been
anything but stellar.
I could go on, but my point is if the FED is as
spectacularly wrong about inflation as it has been about almost everything
else, will they be able to slam on the brakes in time to prevent inflation
from running out of control? And if so, at what cost to the overall economy?
If conditions arise that require the FED to withdraw liquidity, the size of the sales that would be required will be massive.
Who exactly does the FED believe will have
pockets deep enough to take the other side of the trade?
The bottom line is that it is impossible for the
FED to fight inflation, which is precisely why it will never acknowledge the
existence of any inflation to fight.
This is like a thief claiming that he is not
stealing your car, because he intends to return it when he no longer needs
it. To make the analogy more accurate, there could not be any other cars on
the road for him to steal.
Of course, officially acknowledging that fact would make
the Fed's job that much harder. Without the monetization safety valve, the
government would have to make massive immediate cuts in all entitlements and
national defense, plus big tax increases on the middle class.
The FED adopted what amounts to "the roach motel" of monetary policy. If the FED actually raised rates as a result of one of its movable goal posts being hit, the result could be a much greater financial crisis than the one we lived through in 2008.
The bond bubble would burst, interest rates and
unemployment would soar, housing prices would collapse, banks would fail,
borrowers would default, budget deficits would swell, and there would be no
way to finance another round of bailouts for anyone, including the Federal
Anyone with wealth in the U.S. dollar should be
concerned that economic leadership is firmly in the hands of irresponsible
bureaucrats who are committed to an ivory tower version of reality that
bears no resemblance to the world as it really is.