As we have been saying ever since we started our blog the US has had an asset shock and if history is any measure they will incur a deflation cycle.
In yet another repeat of the great circus performer getting things wrong; we talked in this post about a paper we found where the great clown himself talked about why deflation would never happen in the US , and even if it did he knew exactly how to fix it. Try to keep your meal down while you read that one again.
Last night we saw the great clown himself make a speech in which he couldn’t even utter the word. He is now referring to it as “too low inflation”. In 2002 he stated he knew exactly what to do about deflation, so best not call it that otherwise people will expect a fix.
The Federal Reserve moved closer to a second wave of unconventional monetary easing and said for the first time that too-low inflation, in addition to sluggish growth, would warrant taking action.
The Federal Open Market Committee’s statement yesterday that inflation is “somewhat below” levels consistent with its congressional mandate for stable prices pushed yields on two- year Treasuries to a record low. The language evoked FOMC warnings in 2003 of the risk of inflation “becoming undesirably low” that justified the era’s low-rate policy.
The move by Chairman Ben S. Bernanke, 56, who was a chief advocate of the 2003 stance, positions the Fed for expanding a near-record $2.3 trillion balance sheet as soon as November. Inflation that’s too low could result in higher real interest rates and further slow the economy while increasing chances of deflation, or a broad-based decline in prices, said Mark Gertler, a New York University economist.
As our daily readers would know, we are not against QE or deficits. We are however completely against mindlessly doing the same thing over and over again when it is obvious you don’t even understand the issue and were part of the problem.
Again we simply ask why anyone is still listening. He sat idly by while the US economy developed a massive housing bubble imbalance claiming “there was nothing to worry about”. While the US slowly gave away its economic advantages because of perceived wealth he did nothing. When the entire thing exploded in his face; the economy imploded, and unemployment skyrocketed, his answer was to quadruple the money supply while creating an environment where banks were better off keeping all that extra money at the Fed rather than actually giving it out to the taxpayer and businesses.
Now after 8 years of denial that the US could ever have a deflationary moment his answer is to add even more zeroes to the banks acccounts at the fed. Seriously is there noone else in the entire US who could have a go at this?
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