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Dallas Fed Chief: The Fed Is Monetizing The Nation's Debt For The Next 8 Months
Joe Weisenthal | Nov. 8, 2010, 1:56 PM
Richard FischerBen Bernanke has been able to get quantitative easing pushed through with only minimal opposition, but starting early next year the Fed is about to get much more hawkish, as three members are about to get votes, and three doves will lose their votes.
One of those hawks, Dallas Fed Chief Richard Fisher, is speaking out today, warning of the impact of cash that's not being lent out, and what he sees is debt monetiziation -- the Federal Reserve financing the government's spending directly.
What's really interesting though, in his speech, is his call on Congress to do more to boost demand, arguing that there's no way the Fed can right the ship on its own. ...
---
Here are a few highlights from the article:
"... The message the trimmed mean is sending is consistent with
the price picture I have drawn for my colleagues in the past couple of
meetings: The underlying trend in inflation appears, for the time
being, to be holding steady, ...
... We need for the Congress to move quickly, beginning in its
lame-duck session. As Winston Churchill said, “We need action this
day!”
Otherwise, the effect of quantitative easing will, in my view, simply
result in financial speculation, further investment in more welcoming
quarters abroad and, ultimately, in “super ordinary” inflation. ..."
The Federal Reserve is asking Congress to basically, create jobs and get consumers to buy. Too late. Those are all leading effects to a strong economy. Consumer spending lags jobs and jobs won't increase until consumer demand does. It is a catch 22. It seems like the Fed is asking for more stimulus spending. Isn't that WHY the Federal Reserve is monetizing the debt in the first place? We have too much debt!
Where do jobs come from?
"... Obama said ... "it's the private sector that has always been the source of our job creation," ..."
This is not how our government works. Our government tries to take authoritarian control of and micromanage the economy. It does not do the things that would be required to actually get the private sector moving. The trend is toward a centrally managed government controlled economy. Things like reduced taxes are what work in spurring private sector economic growth. Growing the government does not help the economy. "Stimulus" is NOT creating jobs or wealth for corporations or individuals. Companies will hire when demand for products increase. The production costs in this country are so high that places like India and China are getting the jobs, not the USA.
Conclusion - the lame duck Democrats can do NOTHING to spur demand. Inflation is a guarantee. How much is the real question.
What to do?
Insofar as investments go, buy Treasury Inflation-Protected Securities (TIPS). When inflation rises, so will your yield. Take a tip from Warren Buffet and go short term on bonds. Invest in companies that have staple products that people can't live without - food, energy, and medicine, for example. Those companies should pay a dividend, ideally. Then there is gold. You can buy gold. It is expensive now, but inflation will simply make it more so. Instead of the actual metal, you could try investing in mining companies and precious metal index funds.
Individually, you should pay off your credit cards in full. Do EVERYTHING possible to get out of any loan that has an adjustable rate such as an ARM, credit cards, or other loans. If you have a fixed rate mortgage, you might be okay.
You will need a buffer of cash to tide you over until your wages can catch up with costs.
But that brings up another problem for banks - your fixed rate loan will be paid off fast in a hyper-inflation economy since the lenders cannot change the loan amount. The loan becomes worth pennies on the dollar. That assumes, of course, that your wages keep pace with inflation rates. Again, wages lag inflation rates. That means that banks lose money as yet more people either pay off their now VERY cheap loans, or default since their pay didn't keep pace with inflation. I would expect to see some banks fold if we get to "super-ordinary" inflation.
This economy is set to fail and fail hard. Eventually, it will recover, but hard times are just ahead. Get ready for a rough ride.
Joe Weisenthal | Nov. 8, 2010, 1:56 PM
Richard FischerBen Bernanke has been able to get quantitative easing pushed through with only minimal opposition, but starting early next year the Fed is about to get much more hawkish, as three members are about to get votes, and three doves will lose their votes.
One of those hawks, Dallas Fed Chief Richard Fisher, is speaking out today, warning of the impact of cash that's not being lent out, and what he sees is debt monetiziation -- the Federal Reserve financing the government's spending directly.
What's really interesting though, in his speech, is his call on Congress to do more to boost demand, arguing that there's no way the Fed can right the ship on its own. ...
---
Here are a few highlights from the article:
"... The message the trimmed mean is sending is consistent with
the price picture I have drawn for my colleagues in the past couple of
meetings: The underlying trend in inflation appears, for the time
being, to be holding steady, ...
... We need for the Congress to move quickly, beginning in its
lame-duck session. As Winston Churchill said, “We need action this
day!”
Otherwise, the effect of quantitative easing will, in my view, simply
result in financial speculation, further investment in more welcoming
quarters abroad and, ultimately, in “super ordinary” inflation. ..."
The Federal Reserve is asking Congress to basically, create jobs and get consumers to buy. Too late. Those are all leading effects to a strong economy. Consumer spending lags jobs and jobs won't increase until consumer demand does. It is a catch 22. It seems like the Fed is asking for more stimulus spending. Isn't that WHY the Federal Reserve is monetizing the debt in the first place? We have too much debt!
Where do jobs come from?
"... Obama said ... "it's the private sector that has always been the source of our job creation," ..."
This is not how our government works. Our government tries to take authoritarian control of and micromanage the economy. It does not do the things that would be required to actually get the private sector moving. The trend is toward a centrally managed government controlled economy. Things like reduced taxes are what work in spurring private sector economic growth. Growing the government does not help the economy. "Stimulus" is NOT creating jobs or wealth for corporations or individuals. Companies will hire when demand for products increase. The production costs in this country are so high that places like India and China are getting the jobs, not the USA.
Conclusion - the lame duck Democrats can do NOTHING to spur demand. Inflation is a guarantee. How much is the real question.
What to do?
Insofar as investments go, buy Treasury Inflation-Protected Securities (TIPS). When inflation rises, so will your yield. Take a tip from Warren Buffet and go short term on bonds. Invest in companies that have staple products that people can't live without - food, energy, and medicine, for example. Those companies should pay a dividend, ideally. Then there is gold. You can buy gold. It is expensive now, but inflation will simply make it more so. Instead of the actual metal, you could try investing in mining companies and precious metal index funds.
Individually, you should pay off your credit cards in full. Do EVERYTHING possible to get out of any loan that has an adjustable rate such as an ARM, credit cards, or other loans. If you have a fixed rate mortgage, you might be okay.
You will need a buffer of cash to tide you over until your wages can catch up with costs.
But that brings up another problem for banks - your fixed rate loan will be paid off fast in a hyper-inflation economy since the lenders cannot change the loan amount. The loan becomes worth pennies on the dollar. That assumes, of course, that your wages keep pace with inflation rates. Again, wages lag inflation rates. That means that banks lose money as yet more people either pay off their now VERY cheap loans, or default since their pay didn't keep pace with inflation. I would expect to see some banks fold if we get to "super-ordinary" inflation.
This economy is set to fail and fail hard. Eventually, it will recover, but hard times are just ahead. Get ready for a rough ride.