If there were any doubts of the inflationary determination of the Federal Reserve, the minutes of its Federal Open Market Committee meeting on March 17-18 should have put them to rest.
Not only did certain Federal Reserve heads think that inflation was "below desirable levels," they also had this to say:
"Even without a continuation of outright price declines, falling expectations of inflation would raise the real rate of interest and thus increase the burden of debt and further restrain the economy."
Behold the power of folks' expectations
That is really mind-boggling: the idea that even if prices don't decline, people's expectations that they might will somehow actually increase real interest rates. It is just nonsense on the part of the money printers who created all this carnage in the first place.- Jubak on video: Both inflation and deflation ahead?
In fact, despite all the headlines that read "Worst crisis since the Depression," there seems to be very little deflation, other than in prices for assets such as homes and stocks (which don't constitute deflation to begin with).
Twin data points Wednesday offered examples:
- Capacity utilization registered its lowest level in 40 years.
- The Consumer Price Index declined only 0.4%, and, excluding food and energy, it actually rose 1.8%.
More from MSN Money
Deflation? Don't hold your breath
So, if inflation, excepting food and energy, is not less than zero -- with the collapse in everything we have seen, and with capacity utilization where it is -- when will consumers see the benefit of the price deflation so many expect?Obviously, that's a rhetorical question. Anyone who believes that the Fed is really going to take away the punch bowl at the right time and stop inflation anywhere down the road has not been paying attention for the past 20 years, at a minimum. (For more on this, read "If there's no inflation, why do we fight it?")
What lies beyond the Fed's meddling is gold. A recent article in the Financial Times summed up the bull case (though it wasn't the intent) as follows: "UBS, for example, calculates that the U.S. reserves of gold are so small, relative to the monetary base, that a price above $6,000 an ounce would be needed to reintroduce a gold standard. To implement that standard in Japan, China and the U.S., the price would be more than $9,000. Moreover, right now few Western governments have any motive to even entertain the debate, given that inflation may soon seem the least bad way to tackle the current overhang of debt."
Rate this Article
High