He favors "much more [monetary] accommodation than we've put in place."
It’s hard to imaging being more accommodative than the Fed is today. We have ZIRP. We have nearly daily POMO. Rates have never been this low. Ever. We have broken some golden rules on monetization. And Evans thinks we need “much more”?
The Fed might aim to overshoot its informal 2% target for a time to make up for lost ground, Mr. Evans said. "That is a potentially useful policy tool at this point and I definitely think we should study it more,".
All the Fed heads are talking about the need for more inflation. This is nuts. The Fed is in a tiny box and saying, “Deflation is BAD”. If that is true then the opposite, “Inflation is GOOD” must be true. That logic is going to backfire.
There is possible bright side to this. Judging how quickly markets adjust I think there is a possibility that in a relatively short period of time, say the next four months, we have a shake out in oil. It would not take much. All the pieces are there. There is economic growth globally and the dollar is being trashed by the Fed on a daily basis.
I don’t think the average American gives a damn about the dollar. But they care very much about the cost of gas. If we get a price break and the pump says $4.00 and heating oil is $3.00 there will be a backlash. On a broad basis people will be angry. The economy will suffer. Our trade balance and current account will deteriorate. GDP will decline.
At that point the MSM will look for answers. They won’t have far to look. They can blame Mr. Evans or Mr. Bernanke. $120 oil and $4 gas will be brought to you by the Fed. From Hilsenrath’s article, the understatement of the year:
It could be a challenge for the Fed to explain such a strategy, and to convince the public that it wouldn't allow inflation to get completely out of hand.
I can’t wait for Fed officials to explain to Congress and the American people why trashing the dollar and raising the price of energy is good policy. They won’t be able to.
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They won’t be able to.
ReplyDeleteThey'll just say it's necessary to avoid a depression -- a downturn unlike anything since the 1930s. And a sizable majority of those morons and cowards in Congress will believe it; they're mostly lawyers after all.
Re: “All the Fed heads are talking about the need for more inflation.”
ReplyDeleteIf the stated value, of “Federal” Reserve notes, declines enough with respect to copper and nickel, the 1946-2010 U.S. Mint nickels, composed of cupronickel alloy, could become somewhat rare in mass circulation.
The October 5th metal value of these nickels is “$0.0612951” or 122.59% of face value, according to the “United States Circulating Coinage Intrinsic Value Table” at Coinflation.com.
Why doesn't the Fed take the QE money and buy oil--spot and futures--with it? Then we could keep the price down at $2.50--$3.00 even if it rose higher on the world market. In essence, the Chinese would be subsidizing our oil buys by maintaining their currency peg--I think they'd see the wisdom in floating real quick. . .
ReplyDeleteWelcome to Planet Bernanke, the black hole at the center of the Bad Loan Universe!
ReplyDeleteThe Fed and the other CBs are playing with fire. I think $88 is the tipping point, with prices ramping much higher than that will have crude joining the other 'ramp jobs'. At that point events rather than bankers determine outcomes.
So far - since 2008 and this year particularly - oil prices have not been able to hold above $80 without breaking down, taking stocks with them. I expect the same thing to happen this sequence as well.
Of course, the real breakdown began years ago when oil jumped past $35 for real. That put all the businesses dependent upon - $35 under: say ... 2004.
The pump price is not the real issue. Petroleum is embedded in all products and services, including real estate, autos, highways, air transport, retail and recreation. All are tied together; consumers can afford the gas but cannot afford the house. As the house goes (went) so goes (went) the economy as a whole.
If crude ramps the outcome is certain and swift. The real economy is on the ropes. The CBs are overextended and governments have shot their bolts. all bubbles are ponzis and all deflate. A crude bubble will become a new crude deflation, cutting production and amplifying itself.
Once credit freezes the vulnerable finance houses will experience runs as cash becomes King overnight. So much for inflation.
BTW, Steve Keen observed a tight correlation between increases in base money and instantly increasing unemployment. I asked him about it when he was in NYC and he answered 'correlation'. I'm not sure. Companies given access to free money will hire the cash and fire workers.
Time will tell ...
If crude ramps the outcome is certain and swift. The real economy is on the ropes.
ReplyDeleteIt's already happened. Crude, and N-G and coal have already ramped and the real economy is already on the ropes. Look at the charts. This was and is an energy price driven crash.
http://www.eia.doe.gov/aer/finan.html
Here's some grim inflation adjusted price charts:
Fossil fuel production prices:
http://www.eia.doe.gov/aer/pdf/pages/sec3_2.pdf
Consumer price estimates:
http://www.eia.doe.gov/aer/pdf/pages/sec3_6.pdf
And in the White House you have complete nutballs like John Holdren, Carol Browner and Lisa Jackson trying to drive these prices higher and higher.
The world doesn't necessarily have to end. But it will with 1,000% wing nut whack jobs like these, Nancy Pelosi, Henry Waxman et al at the helm.
$120/bbl crude means between $3.75 and $4.00 per gallon for us serfs. This will force many of us to choose between paying for gas & food or our credit cards.. and this is an easy choice. For some, it means choosing between food/gas and an underwater mortgage.
ReplyDeleteIt's then that the final throw of the dice will occur.. introducing the 110% LTV, 3.25% 30 year mortgage !
dont forget the increase coming for food also.
ReplyDelete