Sadly, that last one in the lower right is probably going to turn out to be spot on, though it may take more than a few years to come to fruition.

A little is all right. That’s the message Federal Reserve Chairman Ben S. Bernanke has been giving out recently when asked about the evidence of inflation in the U.S. recovery.

Sometimes Bernanke doesn’t even go that far. He simply says he doesn’t see inflation. The Fed chairman recently described the prospects for price increases across the board as “subdued.”

“Sudden” is more like it. The thing about inflation is that it comes out of nowhere and hits you. Monetary policy is like sailing. You’re gliding along, passing the peninsula, and you come about. Nothing. Then the wind fills the sail so fast it knocks you into the sea. Right now, the U.S. is a sailboat that has just made open water, and has already come about. That wind is coming. The sailor just doesn’t know it.

“Sudden” has happened to us before. In World War I, an early version of what we would call the CPI-U, the consumer price index for urban areas, went from 1 percent for 1915 to 7 percent in 1916 to 17 percent in 1917. To returning vets, that felt awful sudden.
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History has other examples. In 1945, all seemed well: Inflation was 2 percent, at least officially. Within two years that level hit 14 percent.

All appeared calm in 1972, too, before inflation jumped to 11 percent by 1974, and stayed high for the rest of the decade, diminishing the quality of life for whole cohorts.

The fact that financial repression is now official government/central bank policy and that it’s been more than a generation since we’ve seen high official rates of inflation in the U.S. will surely make dealing with rising prices even more difficult this time around.

Also, this ominous warning was offered:

The greater the denial before, the faster the inflation accelerates after.

Yikes! Suddenly, tomorrow’s CPI report seems a whole lot more interesting…

Some would say the time to sell gold is now… Gold just isn’t the misunderstood, widely shunned asset it was a few years ago. Isn’t the bull market now long in the tooth, with better opportunities to be found elsewhere?
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The reason I own gold is because I’m worried about the long-term solvency of developed market governments.
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Eventually, there will be a crisis of such magnitude that the political winds change direction, and become blustering gales forcing us onto the course of fiscal sustainability. Until it does, the temptation to inflate will remain, as will economists with spurious mathematical rationalisations as to why such inflation will make everything OK (witness the IMF’s recent recommendation that inflation targets be raised to 4%: IMF Tells Bankers to Rethink Inflation – WSJ). Until it does, the outlook will remain favorable for gold. But eventually, majority opinion will accept the painful contractionary medicine because it will have to. That will be the time to sell gold.

Grice also gets in a in a jab or two at economists:

…economists look down on disciplines which might teach them it, such as history, because they aren’t mathematical enough. True, historians don’t use maths (primarily because they don’t have physics envy) but what they do use is common sense, and an understanding that while the economic laws might hold in the long run, in the short run the political beast must be fed.

I don’t know about you, but I feel much better now…

As expected, there were no changes to short-term interest rates, existing policies were unchanged, and no new policy moves were announced.

The Fed acknowledged an improving labor market and rising oil prices while also downplaying the threat of spillover effects from Europe, that is, now that the European Central Bank has finally seen fit to print up more than a trillion dollars for the greater good.

“Steady as she goes” is what equity markets were waiting to hear and they responded accordingly (Susie Gharib and Tom Hudson no doubt had twinkles in their eyes on PBS’s Nightly Business Report) while gold and silver traders were again disappointed to hear nary a mention of further central bank money printing on this side of the Atlantic and many of them exited positions as a result.

None of that should come as much of a surprise.

But, what was interesting about today’s meeting was that the policy statement released after its conclusion had a few subtle changes as annotated in the graphic below, something that has been the exception to the rule lately.

First, they removed the statement about slowing global growth (see note 1) when, in fact, economies around the world are either tipping into recession (e.g., Spain, Italy) or ratcheting down their growth forecasts (e.g., China, India).

Second, they chose to replace the word “modest” with “moderate” (see note 2) when it came to updating how they view prospects for economic growth in the U.S. I suppose that’s an upgrade, but not a very bold one.

Lastly, when discussing inflation and their dual mandate of stable consumer prices and low unemployment (see note 3) they changed “at levels consistent with the dual mandate” to “at the rate most consistent with its dual mandate” which I have no idea what to make of.

Of course, maybe they had some new guy update the policy statement and he didn’t know that people scrutinize every little change.

Then again, maybe they’re trying to send some sort of message…

The results of the stress tests are slated for release on Thursday (don’t look for any big banks to fail badly) and, given all the bad press that Bank of America has received in recent months about its long-term viability, it should be interesting to see how it fares.

Of course, if banks’ assets had to be marked to market, few of them would likely pass this or any other stress test, however, that’s just a minor detail.

The post title is a paraphrasing of words of wisdom from Caddy Shack’s Carl Spackler:

So I jump ship in Hong Kong and make my way to Tibet, and I get on as a looper at a course over in the Himalayas. You know, a caddy, a looper, a jock. So, I tell them I’m a pro jock, and who do they give me? The Dalai Lama, himself. Twelfth son of the Lama. The flowing robes, the grace, bald… striking. So, I’m on the first tee with him. I give him the driver. He hauls off and whacks one — big hitter, the Lama – long, into a ten-thousand foot crevice, right at the base of this glacier. And do you know what the Lama says? Gunga galunga…gunga – gunga galunga. So we finish the eighteenth and he’s gonna stiff me. And I say, “Hey, Lama, hey, how about a little something, you know, for the effort, you know.” And he says, “Oh, uh, there won’t be any money, but when you die, on your deathbed, you will receive total consciousness.” So I got that goin’ for me, which is nice.

I wonder what that was that Austan Goolsbee muttered to himself there…

As I’ve reported before, the 2.689 million job loss turned into a gain of 243,000 only because Labor’s seasonal adjustment programs expected the job losses to be bigger. The warm winter weather probably kept some people from being put out of work, and this threw off Washington’s calculations.

Will that same thing happen with tomorrow’s number?

That isn’t likely. Yes, the weather has remained warm. But Labor’s computers are expecting undoctored, not seasonally adjusted growth of more than 800,000 jobs in February.

So there’s less chance that the seasonal adjustments will be pleasantly surprising.

And February isn’t one of those months in which Washington includes a huge guesstimate for jobs added by companies it thinks, but can’t prove, were just started. This so-called Birth/Death Model has been the biggest contributor to job growth — bogus job growth — over the past few years.

Also, John has spotted a link between Tuesday’s stock market dive and Wednesday’s story about the Fed’s latest thinking on the next round of money printing:

Even though one Fed official last week told investors to stop depending on “morphine” from the central bank, the cry for another version of quantitative easing went out less than 24 hours after the Dow Jones industrial average fell 203 points on Tuesday.

Why not give Wall Street what it wants?

Because the Fed’s money-printing operation is leading to higher commodities prices. And as thrilled as I would be to bail Wall Street out again, can’t we at least wait until it really needs our help?

That’s a good question (the second one, that is).

While the quip “Capitalism is an alternative for what we have now – I highly recommend it” has been highly cited, his comments about the 1920-1921 recession were also of interest as that appears to have been the last time that an economic slowdown has been left to run its own course without massive intervention by the government and central bank.

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.

Under 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.
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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.
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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.

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.