Fed Wants Even Higher Inflation

[mick silver]

http://www.321gold.com/editorials/merk/merk042811.html .... Axel Merk
Merk Hard Currency Fund
Posted Apr 28, 2011

Today, the Federal Reserve Open Market Committee (FOMC) announced it will continue to purchase government securities as previously announced ("QE2"), including reinvesting principal payments from its holdings.

The FOMC downgraded its economic growth forecast, acknowledged inflationary pressures have moved from commodity inflation to core inflation, yet insists inflation remains too low. The Fed considers inflationary pressures to be transitory, but monitors the evolution of inflation and inflation expectations.

We may need to revise the meaning not only of the word transitory, but also of what "inflation expectations are anchored" actually means. Forward looking inflation expectations as priced into the markets have moved up significantly since Fed Chairman's Bernanke Jackson Hole speech last August, when he lamented inflation was too low.

It appears to us that the headwinds caused by higher food and energy prices may be answered with more accommodating monetary policy given that the Fed confirms its accommodating policy may persist for an extended period. In that context, it should be noted that the phasing out of "QE2" is not an exit, but a pause. The banking system will remain awash in money as seen in the extreme levels of excess reserves. The trouble is that commodity inflation, and now core inflation, may well be fueled by the policies pursued in the first place.

Fed Chairman Bernanke argues that only equity prices rise because of his policies and that global demand and other factors are largely responsible for food and inflationary pressures. With due respect, while the Fed cannot be blamed for all the ills in the world, the Fed must not deny that it plays a role in fostering inflation, all the more since the Fed's explicitly stated policy is to raise inflation.

As the Fed continues to ease, as all other major central banks ex Japan are tightening, it would not be surprising should the U.S. dollar continue to weaken. It turns out that this may be exactly what Bernanke wants, as he is firmly embracing the dollar as a monetary policy tool.

When a central bank wants higher inflation, that wish is likely to come true. Bernanke has referred to the "slack in the economy" and high unemployment as to why inflation will remain contained. We hope he is right, but cannot base our investments on hope.

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[mamboni]

A medical/physiologic metaphor for what the FED is doing to the US and world economy:

The patient (economy) is bedridden and near-comatose. His blood pressure is low becuase he is severely anemic (i.e his blood cannot carry sufficient oxygen). He is afflicted with several large bloodsucking hookworms (Wall Street banks) attached to his intestines. They slowly suck his blood and gorge while he struggles to survive. Years before, he was strong enough to compensate though high dietary intake (productive work) to feed the worms. But now he has become debilitated from years of bloodletting (interest payments on a growing debt load; loss of ability to work). Dr. FED insists that the patient's health can be monitored simply by measuring his blood pressure (DOW index, manipulated economic indicators) and thus keeps infusing liquidity (i.e. crystalloids via IV) which dilute (inflation) his blood. While this increases intravascular volume and gives temporary blood pressure boosts, the patient keeps lapsing deeper into malaise because his anemia continues to worsen due to the combined effects of FED fluids and Wall Street Bank bloodsucking. Dr. FED says that the anemia is within longterm target range and is not a problem - and fluids will continue. The patient gasps for air, trying to oxygenate his ever thinning blood while Dr. FED proclaims this a sign of improvement and possible turnaround. The patient's organs are beginning to fail (his industries have atrophied and shuttered, closed and bankrupted) because of the prolonged hypoxia (lack of sound money)due to worsening anemia (debt service). The patient's heart is enlarged and near failure and kidneys are starting to shutdown. The Wall Street Bank worms complain to Dr. FED that they must suck more and more blood that is thin and demand that Dr. FED do something as they have grown large and need more and more blood from an ever weaker host (US worker). Dr. FED considers his options:

1. Keep infusing fluid (inflation) and kill the patient to feed the banks
2. Give blood infusions directly to the patient to feed the banks and kill the patient a little later from congestive heart failure
3. Seek another opinion.

You are consulted by Dr. FED to make a treatment recommendation. What therapy do you recommend? (Please note that the Wall Street Worms indirectly pay Dr. FEDs professional fees).

[Spectrism]

Dr Spectrism says the patient is already dead... disconnect all life support. Quickly, before the worms detach from the body or recognize that life support has been withdrawn, place the body into a cast iron tray and incinerate that sucker- killing the worms. Next, go to the victim's house and fumigate it in 3 phases. 1. Hydrogen peroxide vapor the whole thing. 2. Ethylene oxide vapor the whole thing and then remove valuables. 3. Ignite that old house and burn in to the ground.

Begin a neighborhood campaign to erradicate any worms from neighbors- including water supplies, dwellings, land.... and issue radical anti-parasitic drugs to kill every one of them harbored by unsuspecting victims.

Educate (with pictures for the clueless) the people to the causes of the victim's death, the real appearance of these parasites and the losses they have been experiencing at the blood-sucking lying mouths of the parasites.

[mamboni]

Dr Spectrism says the patient is already dead... disconnect all life support. Quickly, before the worms detach from the body or recognize that life support has been withdrawn, place the body into a cast iron tray and incinerate that sucker- killing the worms. Next, go to the victim's house and fumigate it in 3 phases. 1. Hydrogen peroxide vapor the whole thing. 2. Ethylene oxide vapor the whole thing and then remove valuables. 3. Ignite that old house and burn in to the ground.

Begin a neighborhood campaign to erradicate any worms from neighbors- including water supplies, dwellings, land.... and issue radical anti-parasitic drugs to kill every one of them harbored by unsuspecting victims.

Educate (with pictures for the clueless) the people to the causes of the victim's death, the real appearance of these parasites and the losses they have been experiencing at the blood-sucking lying mouths of the parasites.


Dear Dr. Spectrism:

We have received a tip from Dr. FED informing us that you are engaging in unorthodox and potentially non-conforming medical practices. You are hereby summoned to a hearing to determine whether your license to practice Medicine wil be revoked.

P.S. Please remit the annual fee for renewal of your medical license for which you are delinquent.

[Libertarian_Guard]

No doubt the Fed has set it’s sights on higher inflation. In the world of Keynesian economics, there is no other way out, since deflation, in the form of falling housing prices along with salaries would be a quicker death. Inflation allows the can to be kicked down the road a bit further. While enriching the oligarchs of tomorrow, that will snap up everything on the cheap, ala Russia a few years ago, when it becomes clear the debt that will reach the point of becoming insolvent or unable to be rolled over and reissued into infinity.

The Fed won’t admit it, but they’ve taken the USD into a liquidity trap! Higher interest rates will bring an end to the current swindle. After which America will lose most of what they thought they had.