Best of the Week
Most Popular
1.Scottish Independence YES Vote Panic - Scotland Committing Suicide and Terminating the UK? - Nadeem_Walayat
2.Your “Last, Best” Chance to Buy Apple Stock at a Bargain Price - Michael A. Robinson
3.Gold and Silver Price Ready To Go BOOM - Austin_Galt
4.Please Scotland, Blow Up The European Union - Raul_I_Meijer
5.Gold and Silver Potential Price Meltdown Scenario - Rambus_Chartology
6.Scottish Independence UK Catastrophe - The Balkanisation of Britain - Video - Nadeem_Walayat
7.The Truth About Where Gold Price Is Headed - Chris_Vermeulen
8.The Price Of Gold And The Art Of War Part I - Darryl_R_Schoon
9.World Stock Markets Are Topping - Dow, ASX, BSE, DAX and FTSE Analysis - Austin_Galt
10.Gold And Silver New World Order of Deceit, Debt, and War. PMs A Casualty - Michael_Noonan
Last 5 days
Why ECB QE Is Bearish For Gold Prices - 15th Sept 14
Property Rights and Property Taxes—and Countries That Don’t Have Them - 15th Sept 14
Junior Miners Breaking Out Higher Forecasting Gold and Silver Price Bottom? - 15th Sept 14
Stock Market Patiently Waiting for Mean Reversion - 15th Sept 14
A Closer Look at the US Dollar - 15th Sept 14
The Silver Price Sentiment Cycle - 15th Sept 14
Stock Market Correction Underway - 15th Sept 14
Marc Faber - “I Want To Be Diversified, I Want To Own Some Gold” - 15th Sept 14
The Myth of Nuclear Weapons - 15th Sept 14
US Dollar Forecast to Go Much Higher - 15th Sept 14
Analysis And Price Projection Of The Uranium Market - 15th Sept 14
Bank of England Panic! Scottish Independence Bank Run Already Underway! - 15th Sept 14
The Ethics of Entrepreneurship and Profit - 14th Sept 14
The Big Investor Opportunity in the Orbital Space Junkyard - 14th Sept 14
Kohl's and The Rest of The Retailers are in Deep Doo Doo - 14th Sept 14
Independent Scotland Will Disintegrate as Unionist Regions Demand Referendum's to Rejoin UK - 14th Sept 14
Stock Market Pullback Continues - 13th Sept 14
SNP Fanatics Warn of Day of Reckoning for Scottish Independence No Campaigners - 13th Sept 14
Scottish Independence Would Shake Up the Global System - 13th Sept 14
The World Order Becomes Disorder - 13th Sept 14
Is Geothermal Power About to Become The Next Great Battleground Over Fracking? - 12th Sept 14
Heavy Gold and Silver Shorting is Bullish - 12th Sept 14
Strong U.S. Dollar Undermines Gold and Silver - 12th Sept 14
Debt And The Decline Of Money - 12th Sept 14
Panic On The Streets Of London ... Can Scotland Ever Be The Same Again? - 12th Sept 14
Will The Real Silver Commercials Stand Up? - 12th Sept 14
If You Own Only One Investment, Make Sure This Is It - 12th Sept 14
Main Reason Why Scotland Will Vote NO to Independence, 70% Probability - 12th Sept 14
Better Days Ahead For U.S. Stock And Housing Market - 12th Sept 14
U.S. Meddling Dims Prospects for Ukraine Peace - 12th Sept 14
Is the Fed Preparing to Asset-Strip Local Governments? - 12th Sept 14
China Holds “Gold Congress” - Positioning Itself As Global Gold Hub - 11th Sept 14
Fire Ice Could be Energy's Magic Bullet or a Planet-killing Catastrophe - 11th Sept 14
The Mass Psychosis Of 9 /11 Will Never Be Healed - 11th Sept 14
Radical Islam's Crisis of Competing Caliphates - 11th Sept 14
Ukraine Crisis And Self-Determination - 11th Sept 14
Cameron and Miliband Desperately Attempt to Prevent Scotland Committing Suicide - 11th Sept 14
A Supply Crunch Points to Higher Uranium Prices - 11th Sept 14
The Myanmar Shadow - 11th Sept 14
Europe Takes the QE Baton - 11th Sept 14
Full Frontal Inflation - 11th Sept 14
Scottish Independence UK Catastrophe - The Balkanisation of Britain - Video - 10th Sep 14
Economic Reality of a Wealth Tax - 10th Sep 14
10 Year U.S. Treasury Short Best Place to be Remainder of 2014 - 10th Sep 14
Gold Bugs Shifting Sentiment - 10th Sep 14
Strong U.S. Dollar Weakens September Gold Price - 10th Sep 14
Here's Why Trendlines Are Your New Best Friend, Part 2 - 10th Sep 14
Gold, Stocks and US Dollar Long Cycles, Trend Changes - 9th Sep 14
AUDNZD Another Pullback Forex Trading Opportunity? - 9th Sep 14
A Better Way to Play Tesla’s Success in China - 9th Sep 14
The Price Of Gold And The Art Of War Part I - 9th Sep 14
What's With the Japanese Yen? - 9th Sep 14
Macro Factors Dominating Gold Price As US Dollar Outweighs Physical Demand And Investor Flows - 9th Sep 14
It's Time to Get a Bargain on Apple Stock - 9th Sep 14
Gold and Silver Potential Price Meltdown Scenario - 9th Sep 14
No Economy For Americans - 9th Sep 14
Did Putin Just Bring Peace to Ukraine? - 9th Sep 14
Suckering the Public on a War of Terror - 9th Sep 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Huge Stocks Bear Market

Stealth QE3 Comes to Fruition, Soaring Inflation is Next

Economics / Inflation Jun 23, 2011 - 12:57 PM GMT

By: Money_Morning

Economics

Best Financial Markets Analysis ArticleDavid Zeiler writes: U.S. Federal Reserve Chairman Ben Bernanke did what most everyone expected yesterday (Wednesday) at the culmination of the Federal Open Market Committee's (FOMC) two-day meeting - he left average Americans vulnerable to the pangs of higher prices and soaring inflation.


Indeed, as yet another FOMC meeting drew to a close without any significant policy changes, the central bank, as many predicted, kept interest rates at 0% to 0.25%, where they've been since December 2008.

And citing weaker than expected economic growth, the FOMC vowed to remain in an "accommodative stance" by retaining its huge $2.832 trillion portfolio of securities and loans.

The Fed will do this by using the money from maturing bonds and principal payments from its securities holdings to buy more bonds "according to a distribution that is nearly identical to that executed under the Treasury purchase program," according to the New York Fed statement - an extension of the quantitative easing (QE2) program in all but name.

Money Morning Chief Investment Strategist Keith Fitz-Gerald saw this "stealth mode" QE3 coming.

"Instead of printing more money, the Fed is likely to start reinvesting the proceeds of maturing debt," Fitz-Gerald said. "Ultimately, that won't reduce our government's bloated, toxic balance sheet. But it will change the makeup of that balance sheet - and not for the better."

By keeping interest rates at historic lows and continuing to reinvest in maturing debt, rather than retiring it, the U.S. Federal Reserve runs the risk of feeding an inflation rate that in recent months has risen to uncomfortable levels.

But that's something Bernanke has sought to acknowledge without taking responsibility.

"Inflation has moved up recently, but the [Fed] anticipates that inflation will subside... as the effects of past energy and other commodity price increases dissipate," the FOMC said in its statement.

When judging inflation, the Fed uses the core consumer price index (CPI), which excludes food and energy. In May the core CPI rose 1.5%, the most since January 2010 but below the Fed's informal target of 2%.

In his remarks yesterday, Bernanke said he favors the Fed setting an official inflation target, but the FOMC has set no timetable to do so.

Meanwhile, the full CPI increased 3.6% in May, the most since October 2008. Although the Fed likes the core CPI because it avoids volatility, many - including some within the Fed itself - believe the full CPI more accurately reflects the real-world experience of the U.S. consumer.

"One immediate benefit of dropping the emphasis on core inflation would be to reconnect the Fed with households and businesses who know price changes when they see them," James Bullard, president of the Fed Bank ofSt. Louis, said last month.

Fitz-Gerald was more blunt.

"Companies are, in fact, passing along costs as fast as they can," he observed in May. "McDonald's Corp. (NYSE: MCD), Nestle SA, and Wal-Mart Stores Inc. (NYSE: WMT) are just a few of the companies that have spoken out about the specific impact that higher component and ingredient costs have had on their earnings. Many have adjusted their guidance."

Making inflation even harder on average Americans is an unemployment rate of 9.1% and slumping wages. Average hourly earnings fell 1.6% in May.

Of course, using the core CPI number allows the Fed to sweep inflation rate concerns under the rug to pursue policies it believes will stimulate a stubbornly sluggish U.S. economy.

Yet those policies could ultimately prove ruinous to the U.S. economy.

"Be warned: There is every chance that the Fed will lose control, inflation will spiral - and not just to the ruinous levels we saw in the 1970s, but well beyond them, too," Money Morning Contributing Editor Martin Hutchinson said recently. "Inflation may become much more acute - reaching the excruciating/ruinous 20% to 50% level - rather than reaching and then holding steady at the uncomfortable-but-bearable 10% level.

"Even after that occurs, Bernanke will refuse to launch any sort of significant counterattack, or combat it," Hutchinson continued.

Ultimately, the Fed's buying binge could cause a runaway inflation rate that would create a crisis for the U.S. dollar.

"With the U.S. market straining under the burden of rising inflation and some ill-advised monetary and fiscal moves, the death of the dollar is looming as a worst-case -- but still possible - scenario," Hutchinson said.

Source :http://moneymorning.com/2011/06/23/stealth-qe3-comes-to-fruition-soaring-inflation-is-next/

Money Morning/The Money Map Report

©2011 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2014 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014