2012 March 07 | timiacono.com

Nothing to See Here… Move Along…

Now, admittedly, long-term projections about economic growth and the rise in government debt are notoriously unreliable, but, nonetheless, the data in this chart from a new Mercatus Center report is a little shocking. I mean, it’s like we’re not even trying.

Fast Growing Debt

… and I guess, since it’s an election year, there won’t be much of an effort to do anything about this until after all the voting is done in the fall, if then. Oh well, as long as the Federal Reserve keeps buying Treasuries, we shouldn’t have any problems…

Stock Market Plunge Spurs Fed to Action

Well, actually, I hope that’s not what happened, but, after the dive equity markets took yesterday (see this item from earlier in the day), it wouldn’t come as too big of a surprise to learn that Fed Chief Ben Bernanke rang up Jon Hilsenrath at the Wall Street Journal and their conversation led to the filing of this report($) today that makes clear, lest anyone get the impression otherwise, that the central bank is still thinking about printing up another half trillion dollars or so for the greater good.

Federal Reserve officials are considering a new type of bond-buying program designed to subdue worries about future inflation if they decide to take new steps to boost the economy in the months ahead.

Ben Bernanke Wields the Printing PressUnder the new approach, the Fed would print new money to buy long-term mortgage or Treasury bonds but effectively tie up that money by borrowing it back for short periods at low rates. The aim of such an approach would be to relieve anxieties that money printing could fuel inflation later, a fear widely expressed by critics of the Fed’s previous efforts to aid the recovery.

In the new novel approach, the Fed could print money to buy long-term bonds, but restrict how investors and banks use that money by employing new market tools they have designed to better manage cash sloshing around in the financial system. This is known as “sterilized” QE.

Unlike Operation Twist, the size of the program wouldn’t be constrained by the Fed’s own holdings of short-term Treasurys. This approach would also give officials an opportunity to try out some of their new tools to see how they work on a large scale.

I don’t know about you, but, to me, the idea of an “unconstrained” Fed trying out some of their new money printing tools on “a large scale” sounds pretty bullish for just about everything that isn’t the U.S. dollar.

Note that the image above is not the one offered up at the WSJ. It is from this interesting collection of images that are returned when you do a Google image search on Bernanke Money Printing. It actually took a little while to pick one out – the selection was vast.

On “Flexible Inflation Targeting”

In the years ahead we’ll probably hear a lot more about the Federal Reserve’s new “flexible inflation targeting” approach as it relates to their deliberations on monetary policy and this Bloomberg story by Fed watcher Craig Torres gives us a preview of what we’re likely to hear this spring, that is, if gasoline prices wind up where nearly every analyst thinks they’ll be.

Federal Reserve Chairman Ben S. Bernanke spent six years pushing for an inflation goal. Now that he has it, some investors are betting he’ll breach the 2 percent target in the short run to lower unemployment.

The Fed chairman told lawmakers last week that an increase in energy costs will boost inflation “temporarily while reducing consumers’ purchasing power.” He also said the central bank will adopt a “balanced approach” as it pursues its twin goals of price stability and full employment, which it defines as a jobless rate of between 5.2 percent and 6 percent.

“The chairman seemed to suggest they will tolerate a misdemeanor on inflation as unemployment continues to fall toward their goal” over several years, said Mark Spindel, chief investment officer at Potomac River Capital, a hedge fund that manages $250 million in Washington.

Policy makers at a March 13 meeting probably won’t deviate from their commitment to hold interest rates close to zero at least through late 2014, even if their forecast shows a burst of energy-driven inflation, said Lou Crandall, chief economist at Wrightson ICAP LLC in Jersey City, New Jersey. They’ll probably be more concerned that rising prices will hold back real spending, impeding growth and improvement in the job market, he said.

“The chairman said, ‘We think it is transitory, we are sticking to our guns, we are going to focus on the drag on income,’” Crandall said. Bernanke explained how under a strategy of flexible inflation targeting, “a temporary spike in the price indexes can be a reason for the central bank to be more generous rather than less,” Crandall said.

What’s funny – well, that is, unless you happen to be a senior living on a fixed income – is that the Fed’s own projections for unemployment paint a pretty grim picture of what the U.S. labor market will look like going forward, meaning that, this “flexible approach” to balancing their stable prices/low unemployment mandate is likely to result in higher inflation, perhaps much higher inflation.

Well, at least one of them is back…

Yesterday’s 204 point plunge for the Dow Jones Industrial Index has stock investors wondering whether volatility is about to make a big comeback after three months of relative calm. The last 200+ point down day for the index was on November 23rd and, since that time, it’s been a losing battle for the short sellers, but their prospects may soon change.


Wednesday Morning Links

Tension before Greece debt swap – BBC
Stocks rebound but Greek debt in spotlight – Globe & Mail
Spain Lags Italy as Growth Concern Halts Rally – Bloomberg
Rift Grows Between Germany’s Bundesbank and ECB – Spiegel
Obama unveils housing initiatives for military, FHA – Washington Post
As Pension Crisis Looms, Golden Years Fade to Black – Bloomberg
Why Liquidity Is No Longer Enough – Business Insider
The next crisis to avoid is in student loans – Fortune
Debt To Grow Faster Than Economy for Foreseeable Future – Mercatus Center
Faber: How money printing divides societies and tests investors – Arabian Money
Cause, effect, & the fallacy of a return to normalcy – The Burning Platform
What’s Your Personal Inflation Rate? – Time
The Real ‘Price’ Of Gold – Seeking Alpha

Oil prices rebound on fresh concern over Iran – AFP
Gold recovers as dollar retreats, buyers step in – Reuters
Death For Buy & Hold? Where Is Thy Sting? – Capital Spectator
Why the sell-off is just getting started – MSN Money
Oil prices and the U.S. economy – Econbrowser
Are alternative investments for you? – MarketWatch
US 2012 Oil Demand Seen At 15-Year Low – Dow Jones
On China And The End Of The Commodity Super-Cycle – Zero Hedge
People always look for the most stable kind of money – usually gold or silver – Mineweb
Gold market sentiment finally improving – MarketWatch
Dennis Gartman and the goldbugs – FT Alphaville

A tale of two depressions redux – voxeu
The Real Cost of Living: $150,000 Minimum – Fiscal Times
There’s Something Weird Going On With The Economic Data – BI
Euro-Zone Central Bank System Massively Imbalanced – Spiegel
China lambasts U.S. trade bill, won’t adjust yuan – Reuters
A Republican backlash brews over IMF and Europe – Washington Post
Australia GDP Grows at Half the Pace Economists Forecast – Bloomberg
Fewest O.C. homes for sale since 2005 – O.C. Register
A Huge Spike in Repeat Foreclosures – CNBC
Federal Reserve under attack … again – CNN/Money
Banks’ Deliberate Mispricing of Risk For Personal Gain – Jesse’s Cafe
After 3 years, we’re all hooked on free money – MarketWatch
Bernanke Seen Accepting Faster Inflation – Bloomberg

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