Wednesday, November 28, 2012

Feud at The Fed: "Horrific Consequences" for Unlimited Easing


The Fed's plan to purchase $40 billion in mortgage-backed securities and $45 billion in long-term US Treasuries every month for the foreseeable future is now creating internal feuds.

The Federal Reserve's latest round of quantitative easing has no timetable to end or any measurable goal. Yesterday, the Dallas Fed President said this policy without limits would result in "horrific consequences".

Reuters is reporting today on these "deep divisions" at the Federal Reserve:
Charles Evans, president of the Chicago Federal Reserve Bank and one of the Fed's most outspoken doves, said interest rates should stay near zero until the jobless rate falls to at least 6.5 percent. Such a policy would carry 'only minimal inflation risks,' and could boost growth faster than otherwise, he said. 
Evans, who rotates into a voting seat on the Fed's policy-setting panel in January, also said the Fed should step up its program of quantitative easing in the new year to keep its overall level of asset purchases at $85 billion a month for most, if not all, of 2013. 
But Dallas Fed President Richard Fisher, a self-identified inflation hawk, said the U.S. central bank could get into trouble if it does not set a limit on the amount of assets it is willing to buy.
'You cannot expand without limits without horrific consequences,' he told reporters on the sidelines of the conference organized by the Levy Economics Institute in Berlin. 'There is no infinity in monetary policy, we know that from the German experience.'

No one at the privately-owned US central bank has been able to explain how spending $85 billion per month ($1.02 trillion for 2013) on these purchases will reduce unemployment and maintain dollar price stability, the only tasks the Fed is charged with.

In fact, they don't even pretend to be achieving these duties anymore. Both Evans and Fisher agreed that fixing unemployment is more important than controlling high inflation. Therefore, they're willing to trade one for the other.

"I am not worried about inflation right now, I am worried about an underemployed workforce in America," said Fisher indicating that he is willing to go along to get along despite his "horrific consequences" remark.

Evans believes the Fed should keep interest rates at zero, continue or even "ramp up" purchasing Treasuries and mortgage-backed securities until the unemployment rate is 6.5 - 7 percent and inflation doesn't threaten 3 percent.

And, of course, they are using the "official" numbers for inflation and unemployment which everyone now knows are bogus to begin with.

The only reason the official unemployment number is marginally improving is because hundreds of thousands are scrubbed from the equation.

In September, Bloomberg reported, "The unemployment rate fell to 8.1 percent from 8.3 percent, but that was only because 368,000 people left the labor force. The share of working-age people who are either working or looking for work—known as the labor-force participation rate—fell to its lowest level since September 1981."

Source

So it is highly unlikely that buying bad paper from banks and monetizing the US government's debt will make one bit of difference for the real unemployment problem no matter how much they spend doing it. And when it doesn't work, we can be assured of one thing:  they will throw even more money at it, and it will most certainly result in "horrific consequences" for the value of the dollar.

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7 comments:

Anonymous said...

Nah! Don't WORRY about it! 40 billion PER MONTH!
What could go wrong? Ok, yeah, I'm beyond worried, I've got my mountain escape all set up and I've got every show of "Doomsday Preppers" on my blu-ray just a waitin' for me to show up and start livin' off the land. Me n' you, n' a dog named Boo!

Anonymous said...

The goal is to print money (no backing)buy gov IOU's --gov pays interest and when things get bad the central banks call in the debt--IOU's and take control of America's assets --land,resouces,etc.

Anonymous said...

Say any thing you want about RON PAUL. BUT RON PAUL HAS BEEN RIGHT ALL ALONG.AND IN THE END HE WILL HAVE THE LAST LAUGH ON ALL YOU WHO LAUGHED AT HIM ANS SAID HE DIDNOT KNOW WHAT HE WAS TALKING ABOUT.
god bless

Anonymous said...

Americans always get the Government they asked for. That's why it gets progressively wworse year after year.

Michael I said...

In the grand scheme of things, I can't wait for everything to drop off the "fiscal cliff." I work in the mortgage industry, which is 100% dependent on the banks, and as such I understand that when the SHTF, I (along with millions of other people) will be out of a job. I'm okay with that; I've got a lifetime of skills to fall back on. I may not have a lengthy supply of food, but my family and I should be good for about a month right now, and we're building up some more supplies even now. However, if the SHTF fan I'll be stuck in the apartments here in suburban Hell.

Oh, glory days!

Peace and love,
Mike in Alabama

Anonymous said...

hey this will make everyone laugh.......in Australia and New Zealand, there are tens of millions, who have no frigging clue of what will happen when the US dollor dies......as for me I know !!!!, but have little money to spare for preps, its going slowwwww so I guess that I will have to scrounge from those who leave stuff behind after they have shuffled off this mortal coil .......so, glory, glory, glory cometh my way Lord !!!!

sadly I think our dumbed down society is getting what it deserves....


it will be fun in a disarmed country won't it ???


yyyyyyyyyyyyyyyyyeeeeeeeeeeeeeee haaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaa !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!


" reap the whirlwind , Sherrif "


Chris in Australia .....


wont

syed said...

Lets suggest an alternative theory here...We dont need any fed..clear

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