The Motley Fool Discussion Boards
Investment Analysis Clubs / Macro Economic Trends and Risks
|Subject: Re: Control Panel: Only a spring shower?||Date: 2/24/2013 1:41 PM|
|Author: PosFCF||Number: 416602 of 472590|
Fed is successfully supporting the rising stock market while suppressing consumer inflation since monetary velocity is low.
While I agree with that assessment in broad terms, it seems to me that one of the reasons inflation is known to be pernicious once it gets started might be that to effectively fight it is to engage in a strategy which causes a lot of pain. The famous story of Paul Volker increasing the Fed funds rates to the 20% range in the 1980s in his historic efforts to curb inflation is one primary strategy that will not be available to whoever might be at the helm of the Fed when next inflation rears its oh so ugly head. 20% of $17 trillion in debt is $1.4 trillion per annum in interest costs alone.
In a stock market increasingly (and increasingly global as well) dependent on massive liquidity injections, one of the other primary inflation fighting strategies.....that of draining the liquidity....seems to have some major negatives for more than our country getting crushed. Witness the seizure in the world markets this past week on just the notice that some Fed governors had even dared to suggest such a dastardly course of action. Imagine what might happen if those suggestions turned into policy.
Now I know that those who favor the current Fed policies point out that measured inflation is really nowhere to be found. But then (for me) that begs the question of whether we are to believe that the same Fed who didn't see the housing bust coming, and didn't assess it properly when it arrived, has suddenly morphed into a "genius" Fed? One does wonder.
But the point about inflation that seems to get overlooked is that, like many things in life, by the time the symptoms show up it is already well entrenched.....especially when we deceive ourselves that the thermometer we use to measure the inflation is not skewed to providing low-ball readings. We all like to think that we will intuitively know to correctly interpret the readings but in a busy and complex world, we often forget about the assumptions we make.
|Copyright 1996-2015 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us|