The Grip of Inflationomics
| The following is part of the text of the statement released on September 21, 2010, by the Federal Open Market Committee: |
| “Measures of underlying inflation are currently at levels somewhat below those the Committee judges most consistent, over the longer run, with its mandate to promote maximum employment and price stability. With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to remain subdued for some time before rising to levels the Committee considers consistent with its mandate. |
| The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period. The Committee also will maintain its existing policy of reinvesting principal payments from its securities holdings. |
| The Committee will continue to monitor the economic outlook and financial developments and is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate.” |
In simple English, this means the Fed will keep the federal funds rate at zero to one-quarter percent and stand ready to provide additional money (accommodation) if needed. Question: Who doesn’t need more money? The United States Treasury? Banks? U.S. State governments? Municipal governments? Home owners? Foreign governments? Everyone needs more money! So, of course the Fed will print more money and keep interest rates at rock bottom levels. It will do its best to increase the money supply, even if it means buying worthless assets (bonds, mortgages, etc.). It doesn’t care that this policy is inflationary. In fact, it knows it is inflationary and that’s why it’s doing it. It wants more inflation! It’s caught in the grip of an idea known as inflationomics; i.e.,
| A body of economic thought that favors inflationary policies. In popular terminology, it indicates the sway of inflation thought in education and the affairs of government. |
The Fed is caught in the grip of inflationomics (as are most central bankers and politicians). So what is the long-term effect of inflationomics? Worthless paper money, that’s what. It’s just a matter of time.
Being caught in the grip of inflationomics precludes any other course of action and any other result. In the Fed’s pursuit of inflation, the Fed must keep interest rates low and print ever more money. It’s just a matter of time before the currency becomes worthless.
What about the alternative you ask? Stopping inflation by raising interest rates and slowing money printing? This would increase the value of the dollar, thus making it more difficult for debtors to pay off their debts (read: the already bankrupt U.S. government, U.S. state governments, U.S. corporations and homeowners, foreign governments, etc.) and hinder the federal government’s ability to bail out those entities it likes. It would also give creditors (read: China) more power to purchase resources the world over. The U.S. economy would dive into a tailspin, increasing unemployment, bankruptcies, foreclosures, and civil unrest. NO WAY will the Fed allow this to happen!!!!! The result is a foregone conclusion—we will have more inflation until the currency becomes worthless. It may take five to ten years, even fifteen, because other central banks will be buying dollars to keep their currencies weak relative to the U.S. dollar, but it will happen.
The reason the Fed prefers inflation over a deflationary depression? Inflation kicks the can down the road a few years and allows the result to occur gradually. It also reduces the purchasing power of the Chinese. In other words, it will affect (pull down) an ever larger number of people, but it happens gradually and “in the future.” In the meantime, the politicians can blame others for the inflation—they couldn’t blame anyone else for a deflationary depression.
Prepare now….DO NOT rely on a bankrupt government to help you!
Robert Jackson Smith