When all else fails, print money.
More broadly, though, Bernanke’s Op-Ed reveals a strategy that, at heart, is aimed at creating another asset bubble even if that’s not being explicitly acknowledged. The Fed is essentially creating $ 600,000,000,000 of “new money” in the hopes that it will push stock prices up, which it in turn hopes will stimulate consumer spending, which in turn it hopes increases business investment and hiring. It’s a very Rube Goldberg-ian vision of how to stimulate the economy, and it seems to me to be exactly the wrong thing to do at this point. It isn’t the job of the Federal Reserve to push up stock prices, or at least it shouldn’t be, and an economic recovery that is based primarily upon increased financial speculation strikes me as very fragile indeed, and basically amounts to repeating the same mistakes that got us into the mess we’re trying to get out of.
Maxed Out Mama on consequences for consumers;
Basically the Fed is forcing a lot of sellers to raise their prices, but it does not control the ability of the average person to pay those prices. Over the short term, people will probably spend more to get buy without constricting total spending, unless they are going week-by-week. Over the longer term, people will just buy way less discretionary goods. To put it starkly, if the average consumer is covering inflation in living costs by borrowing these days, that consumer is headed to BK court.
But first, she quotes scripture.
I know our money guys will have lots to add in the comments.
The end is near. Buy gold and silver and spend those US dollars before they are worthless.
Agriculture commodities are surging upward today like the sky is the limit. Food is about to get very expensive…those here that spoke of hoarding canned/dry goods had the best advice going as a hedge on inflated prices.
The Fed move is, simply put, inflation of the money supply. I will emphasize that it is not a move that may lead to inflation, it IS inflation in the true definition of the word, that being an increase in the money supply.
What is happening is no different than what transpired in Weimar Germany, Zimbabwe, and every other tinpot nation that tried to inflate its way out of a deficit problem, and if left to run unchecked, will have the same outcome.
Don’t fight the Fed. Invest/uninvest, based on intrinsic value (USD included!). Do not openly debate your financial positions/thoughts because animosities can skew your better judgments.
But above all, do not listen to pundits or media talking heads or put all your faith in sites such as Motley Fool or Zero Hedge. They cannot predict with certainty – neither can I 🙁
The mid-terms may, MAY have unshackled the US(the world’s?) economy. aka the Kyoto Shackles.
The first round of QE didn’t work so why they would try again will be something for the historians to figure out when they are analyzing why America continued its slide into economic oblivion years from now. If too much debt got the Americans into this problem, exactly how will the Fed taking on trillions of dollars of debt get them out of the problem?
If they inflate enough (Weimar – Zimbabawe) those trillions of debt will be chump change. Easy peasy. …As he chuckles maniacally…
If Kyoto is truly dead, biofuels may be dead also. Then the US will instantly have 30% more corn for the market to handle.
Shocking, when one considers that even just a 10% increase in supply can cause a 50% decrease in price. American corn is a very major exportable world crop.
The last few years, world wide, many acres of forest/jungle have been cleared to produce biofuels. If not biofuels, they will produce food crops.
This whole quantitative easing nonsense is based on the idea that inflation is minimal right now. Of course, it might appear that way if you are lucky enough not to have to purchase gasoline, food, insurance or pay any property and education taxes. I know that my costs for these items has increased at a far faster rate than any officially stated rate of inflation. I’m quite certain I’m not alone in this regard.
In terms of some anecdotal evidence for inflation, I sold some scrap metal this summer for $135 a ton. The same place is now paying $200 a ton, and they are advising sellers that the price will go up even more before too long.
Bernanke’s basic problem is that he confuses inflation with economic growth. The two have got nothing to do with each other, and the sooner he figures that out the better off we will all be.
Not to mention rapid inflation.
This would be a bad idea at any time, but it’s even worse in these Internet days. Everyone knows about it. Everyone knows what the results won’t be what Bernanke wants.
So everyone hunkers down deeper into their bunkers, reinforcing the walls as much as possible. This will drive the cost of commodities up even more than the simple inflationary pressure would have done.
I’d ask what Bernanke is thinking, but it’s obvious he isn’t. He risking the necessary in search of the superfluous (and probably unattainable.)
Ride the wave. Good for stocks short term. Use, and closely monitor, a momentum oscillator with multiple time frames. Likely bubbles about to burst in the gold sector (big time, I’m out) and perhaps the emerging markets (not sure though). Ags and base metals aren’t cheap but there’s room to go along with the emerging markets for now. Ride the wave and get out when the momentum stalls, like an old friend of mine did with the techs in the late 1990s. He’s now retired and he grins every day. Sector rotation probably coming up in favour of: the financials, and energy.
Good enough for my portfolio, which was already positioned to take advantage of the commodities boom when the feds started printing money.
They announced it Wednesday.
Today, I’m $15,000 richer.
Thanks Beranke. Thanks US taxpayer.
Aside from the obvious potential ill effects of this ‘purchase of treasury bonds’, I gather the total amount of bonds held (close to $3 trillion after this purchase) is not considered part of the official national debt?
I bought some gold a while back and it’s up over 18,000. and my silver is up three bucks an ounce.
I burn wood and have no debt whatever.
I have not had any vacations or been purchasing any toys/big ticket items or even eating out for the past couple of years. …. Obama’s election warned me of what to do and I did it two years ago.
Two more years and that supposedly educated, but incredibly stupid man will be in the history books along side Jimmy Carter and Fidel Castro and Pierre Trudeau.
It will take at least an entire generation to recover … if ever.
Evnironment minister Jim Prentice resigns.
http://money.canoe.ca/money/business/canada/archives/2010/11/20101104-154147.html
This will affect Canadians Big time, I feel we are on the edge of a precipice, and no one can see the bottom
“I bought some gold a while back and it’s up over 18,000. and my silver is up three bucks an ounce.
I burn wood and have no debt whatever.
I have not had any vacations or been purchasing any toys/big ticket items or even eating out for the past couple of years…”
Yes, but what’s the point of all this if you’re not doing anything with it?
Am I missing something?
(Of course, you mean personal debt here. You carry a certain national debtload whether you like it or not.)
Maxed Out Mama could equally well have quoted Revelation 6:6, a nice one for times of commodity inflation and Wall Street bailouts: “And I heard something like a voice in the center of the four living creatures saying, “A quart of wheat for a denarius, and three quarts of barley for a denarius ; and do not damage the oil and the wine.”
The government Ponzi scheme continues….
The fundamental problem with government borrowing (or printing money, same thing in the end), is that the debt never gets paid back, so it is impossible to accurately determine the rate of return the taxpayer is receiving for the investment.
When you pay your taxes, a large chunk of the money goes to paying interest on debt. Yet I bet not *one* government official can tell you what you actual return is on that debt “investment”.
If government officials were subject to the same rules they themselves apply to public companies, they would all be in jail for defrauding their shareholders – the shareholders being us, the taxpayers. No joke.
Something has gone horribly wrong with the people/government balance.
“I bought some gold a while back and it’s up over 18,000. and my silver is up three bucks an ounce.
I burn wood and have no debt whatever.
I have not had any vacations or been purchasing any toys/big ticket items or even eating out for the past couple of years…”
Yes, but what’s the point of all this if you’re not doing anything with it?
Am I missing something?
(Of course, you mean personal debt here. You carry a certain national debtload whether you like it or not.)
Hey, ya got ink ya got money to burn right?
If you’re nervous about gold, Silver is 25-45% under valued right now.
I second Alan’s comments. Unfortunately this Obama administration and Bernanke’s response to the economy is playing out with tedious predictiblity. First comes the recession. Then comes the Orwellian-named “stimulus”, then comes the inflation and then the stag-flation if we’re lucky, then comes the hyper-inflation if we’re not. Productive sectors of the economy get throttled by crippling taxes and regulation. Economic dead weight (bloated governments and hopelessly over-paid unions) are expanded. Then as the economic mess worsens, “enemies of the people”, “wreckers” and “counter revolutionaries” get blamed for the mess.
Hopefully the Republican capture of the house of reps will allow them to put the brakes on before it all goes over the precipice. Unfortunately, I suspect a lot of the walking dead Dems will use their last gasps to push the whole thing over the edge.
The businessmen must be beside themselves — trying to keep their houses in order while the loons run amok with tools they don’t even begin to comprehend, flailing like idiots and wrecking everything they touch. Emerging economies keep looking better and better.
Consider this possibility.
The U.S. is setting up a “soft default”, and solving a few other problems at the same time.
Here’s how it may work. With the U.S. dollar devalued due to inflation, paying back foreign creditors (China, anyone?) becomes far cheaper. The creditors get paid back dollar for dollar, certainly, and get thoroughly screwed in the process.
At the same time, the U.S. domestic “entitlements”, an unsustainable burden at present, also get every dollar promised. But those dollars are worth far less.
Yet further, American products will be much much cheaper for foreign purchasers. This should stimulate employment.
Am I wrong? Please, someone, tell me Obama isn’t that smart.
And Canada’s Kyoto shackle came off today. Environment Minister Prentice resigns.
To my previous post re. “soft default”, I really should add that there is no guarantee whatsoever that the plan would work. The U.S. defaulting in any way would throw every economy in the world into an uproar, with consequences that cannot be predicted. Too many countries affected, too many individual reactions and decisions being made. I don’t think even Obama is that smart, though I’m sure he thinks he is.
I have heard agriculture is the new best thing. I’m a contrarian by nature and I’m sticking with energy. Oil, gas and uranium. I have always bought what is out of favour and held it. Everything is cyclical and in the end I was buying near the bottom. Yeah it has it’s rough spots but you only lose when you sell and some things will be up and some things will be down. I used to sell winners and take profit. Now I sell losers until I run out of capital gains to get back.
I don’t recommend it but I sleep well and just don’t want to follow the market the way I used to. Too little a fish swimming with very big sharks.
Posted by: set you free at November 4, 2010 4:32 PM
Heh, yep…sold several thousand units of an oil ETF today for a tidy profit. Thanks Ben.
1. QE replenish banking reserves, then what?
2. Looking at Japan and Europe I wouldn’t bet against US dollar, yet.
3. If there is 2 quadrillion toxic assets in the global financial system (as estimated), I wouldn’t worry about inflation, unless the plan is to destroy all major currencies
DrD, that’s why corporate balance sheets are loaded with cash these days. They’re not paying out dividends and they’re not investing in expansion. The uncertainty level is just too high.
Compounding the US deficit problem, in March this year for the first time ever, US Social Security started to cash out treasury bonds. For the first time in US history, outflow for social security exceeded inflow. Given US demographics, this will only get worse in the years ahead. At some point, the US will be faced with the same equation that some European countries are now confronting; restrict entitlements, increase tax revenues or face a structural deficit that forces a national default.
Wayne, The likely problems will also be that the american people will be broke, and broke people are very troublesome. They riot, steal and cause alot of problems. And hyper -inflation is very likely to occur. And as a side note America produces very few “products” any more. [ that’s the major reason they are in this predicament.]
Unfortunately, all the “green” nonsense has lead to the burning of food as fuel.
A few weeks ago there was a very quiet announcement made, that received little press, that the EPA was increasing the ethanol content of gasoline from 10% to 15%….throw in a reduction in crop yields from the USDA and it has made for an incredible rally on the grain commodity markets. However, the prices being contracted leave no room for profits for the ethanol producers and that will lead to either taxpayer having to subsidize ethanol production or consumers having to dig even deeper in their empty pockets to pay higher gas prices.
This is not going to end well for anyone.
They aren’t going to solve their economic problems until they become the United States of Austerity.
The US GDP is something like 70% consumer spending. Consumers are debt-ridden and tapped out, yet Bernanke aims to print money, thereby debasing the US dollar and destroying consumer purchasing power, as a means to kick start the economy. Doh? Even Ed Yardeni, who’s been rather bullish of late, has switched to calling QE (quantitative easing) by the far more accurate acronym MD (Money Debauchment). QE is designed to create inflation, the most pernicious and stealthy form of taxation. I doubt that it will kick start the US economy, but it will definetly kick start inflation, and I have difficulty with the notion that the same brainiacs who were asleep at the switch and did not see the housing/debt bubble inflating in the first place and who were in denial about its dangers until well after it burst, are miraculously going to be alert this time and ready to nip inflation in the bud when it raises its ugly head again. Madness.
hkoza @3:27
This time they are blowing a commodity bubble…just like the high tech & housing bubbles and ALL bubbles eventually burst.
Correct me if I’m wrong but has QE not been tried before in Japan? With the result Japan’s debt is now 200% of GDP and for the most part they have had “0” growth in almost 2 decades.
Madness for sure.