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Will the Federal Reserve ‘Go Nuclear?’

Posted by Larry Doyle on June 8, 2012 9:32 AM |

Many market participants are hoping and praying that Ben Bernanke will save the day by implementing another round of quantitative easing. Having become addicted to the monetary ‘heroin’ provided by our central bank, those on Wall Street would love another ‘hit.’

Is this the right approach to curing what ails our nation’s economy? Of course not. I stated as much in a recent interview:

“The problems with the current Fed policy and fiscal programs implemented by this administration are that the MASSIVE structural issues eroding the foundation of our economy and society are not being confronted.”

So what might the Fed do? With the Fed’s ‘dope’ packing less and less of a punch, would they ‘go nuclear’? What’s that you say? 

Would the Fed publicly foresake its long stated goal of stable prices and target an elevated level of inflation in an attempt to ‘spike the juice’ and re-energize the economy? (Make no mistake, the Fed has been pursuing inflationary policies without public acknowledgment).

This would be the most dangerous game, but we are fast approaching it.

For more on this explosive topic, the politicization of the Fed, economic crisis management, and the limitations of central bank policies, I strongly encourage you to find ten minutes to absorb the wisdom of Mickey Levy, chief economist at Bank of America, and Charles Calomiris, professor at Columbia Business School. Having worked with Mr. Levy in the late ’90s, I hold him in the highest regard. He embraces and promotes the essence of ‘sense on cents.’

In his recent testimony, Bernanke implored Congress to increase spending because he knows the perceived necessity to ‘go nuclear’ is moving perilously closer. The fact that this reality is before us is a total indictment of those within our financial and political hierarchy of the last two decades.

Navigate accordingly.

Larry Doyle

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I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

 

  • Jim

    Larry, I have a lot of my liquid assets in gold and sliver for precisely these reasons. Do you think run-away inflation is a foregone conclusion?

    • LD

      I do not think it is necessarily a foregone conclusion. Reason being I think we will have a new Fed chair before a formal decision on this front is made.

      If Obama wins, then I think the chances certainly increase. If Romney wins, not quite so much but still a distinct possibility.

      I do think Bernanke will only be around for another 6 months or so. Should have a new Fed chair in 1st quarter 2013. Doubtful Bernanke shifts to this policy stance so close to a Presidential election…although, one never knows.

      We live in such a fragile world, anything is possible.

  • coe

    Europe is a story that most believe will not end well. China is wrestling with their own economy. The role of Central Bankers should be tangentially involved with “crisis management”, but less politicized in their “forward looking” response to market vagaries – at least in my opinion…how about this as an observation – isn’t it a sign of weakness in both Obama and his key economic advisors that has allowed Bernanke and the Fed to take such an elevated role in the country’s financial affairs? With the ten yr at all time lows and the two year in the 20bp range, just what do people think will happen if rates are lowered in a QEIII move? If, in fact, the Fed decides to balloon their balance sheet by buying mortgages or Treasuries, that surely will provide some lift to those sectors, but at what cost down the road…I tend to agree with you – our problems are structural – no QEIII hail Mary pass will save the day nor should it






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