Federal Reserve Issues a Blank Check
Posted by Larry Doyle on September 14, 2012 7:37 AM |
Well, I gather we will not be discussing the need for a 4th round of quantitative easing down the road.
Given that the Federal Reserve’s announcement yesterday put neither a dollar amount nor an end date on its pronouncement to purchase $40 billion in MBS (mortgage-backed securities) per month as needed, the great and wondrous Fed wizard Ben Bernanke effectively pre-signed a series of blank checks.
Thoughts and questions crossing my mind this morning include:
1. Who pays for the Fed’s free flowing money spigot and what are the risks that the “hydrant” breaks and the liquidity provided floods the system?
We all pay in the form of heightened inflation expectations, a weaker currency (see photo above), and a transfer of wealth from creditor to debtor, the biggest culprit being Uncle Sam himself. Not exactly the model for pursuing the American dream. The chances if not the likelihood of stagflation are greater today than they were yesterday.
2. Whatever happened to the green shoots sprouting along our economic landscape?
All so much bulls*&$ touted by the carnival barkers masquerading as economists, public policy mavens, and politicians. Our economy is in far worse shape currently than anybody at the Fed or elsewhere would ever dare admit. The economic issues we face are structural in nature and have developed over a protracted period. Crony capitalism comes with a price and we are all paying it right now.
3. What about the Fed’s projections going forward?
A 7% mid-range employment projection for 2014? Means nothing!! Why? As we have all come to learn the unemployment rate can drop precipitously merely by people exiting the labor force as they did in droves just last month. Why doesn’t the Fed inject a degree of integrity into its projections and target a labor participation rate? …. Anybody … anybody? . . . Bueller?
4. Inflation projections?
In regard to inflation, Fed projections of 2.0% for core inflation is also a central part of the charade being perpetrated upon the American public. Recall that core inflation excludes those “so called” volatile components of food and energy. I am reminded of the real rate of inflation in our nation today when I pay ~$4.15 to $4.20/gallon to fill my truck with regular gas. (I paid $4.39 this afternoon!!!) The cost of food? Don’t get me started.
The Fed’s blank check style of central banking alleviates the pressure on those charged with fiscal policy in our government. That is not necessarily a good thing. The dysfunction that runs rampant in Washington is a core part of the problem that brought us to this point on our economic landscape.
As I asked yesterday and do so again today and surely will tomorrow, where are our leaders who demand the truth and are willing to sacrifice personal political gain for the long term well being of our nation? What a pack of losers.
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.