Fed Wants to Hoodwink Public, Only Fools Itself

Caroline Baum
Bloomberg

If I were a central banker, I would be afraid.

If I were a central banker getting ready to embark on another round of quantitative easing, I would be very afraid.

Here’s why. Central bankers in the U.S. are being bombarded with market-based signals suggesting their fears of deflation, or falling economy-wide prices, may be misplaced.

Gold prices continue to set new highs. The U.S. dollar, the global reserve currency, keeps sinking amid expectations the Federal Reserve will dilute the existing stock starting at its Nov. 2 to 3 meeting.

Commodity prices, both industrial and agricultural, are on a tear. The CRB Spot Raw Industrial Price Index, which includes scrap metals, cotton and rubber — but not oil — hit an all- time high this week.

Junk bond issuance already set a record for the year, with demand for high-yield debt narrowing spreads to Treasuries. Investors are pouring money into emerging markets debt issued in local currencies by countries that used to be considered banana republics. Mexico sold $1 billion of 100-year bonds last week, double the announced issue size, at a yield of 6.1 percent. Just ask yourself: Would you lend money to Mexico for 100 years? Exactly.

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