Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Gold Is the Winner of the U.S. Presidential Election - 31st Oct 20
Gold and Silver Prepare For Another Price Advance - 31st Oct 20
Gold Is Likely to Win This Election - 31st Oct 20
Why Trump Can Still Win 2020 Election - Establishment Mainstream Media Wrong Again? - 31st Oct 20
Why Budgies Need their Own Feeders - Parakeets Feeding UK - 31st Oct 20
Can Trump Still Win? US Presidential Election Forecast Matrix 2020 - 30th Oct 20
Why a Biden Win will Keep Metals Prices Rocking - 30th Oct 20
Is Silver the Next Bitcoin? - 30th Oct 20
A New World Monetary Order Is Coming - 30th Oct 20
Do These Explanations Make Sense for This Intraday Stock Market Turn - 30th Oct 20
US Presidential Election Forecast Matrix, Stock Market Uncertainty - 29th Oct 20
Stock Market Turning? Look For These Support Levels - 29th Oct 20
Silver: A Conceivable Dead-Cat-Bounce on the Cards - 29th Oct 20
Stocks are Strong but be Aware of this Continuing Pattern - 29th Oct 20
The Most Profitable Way To Play The Gold Boom - 29th Oct 20
Why You Should Hire An Accountant To Complete Your Tax Return - 29th Oct 20
Global Banking: Some Sectors Look as "Precarious as Ever" - 28th Oct 20
Silver Price Minor Dip Possible Before 2nd Major Upleg Starts - 28th Oct 20
�� How to Carve a Simple and Scary Pumpkin Face for Covid Halloween 2020 �� - 28th Oct 20
Gold Price One Last Dip Likely Then Major Upleg to New Highs - 28th Oct 20
Smart Money Is Going All-In On This New Gold Frontier - 28th Oct 20
Gold Stocks Still Correcting - 27th Oct 20
Gold and Crypto: Is This How Charts Look Before A Monetary Collapse? - 27th Oct 20
Silver's Coming Double Trigger Shotgun Price Explosion - 27th Oct 20
The $126 Billion Gold Opportunity in Australia - 27th Oct 20
Tips to Breeze through Your Spanish Classes Online - 27th Oct 20
Try The “Compounding Capital Gains” Strategy Today - 26th Oct 20
UK Coronavirus Broken Test and Trace System, 5 Days for Covid-19 Results! - 26th Oct 20
How the Coronavirus is Exacerbating Global Inequality, Hunger - 26th Oct 20
The Top Gold Stock for 2021 - 26th Oct 20
Corporate Earnings Season: Here's What Stock Investors Need to Know - 25th Oct 20
�� Halloween 2020 TESCO Supermarkes Shoppers Covid Panic Buying! �� - 25th Oct 20
Three Unstoppable Forces Set to Drive Silver Prices - 25th Oct 20
Car Insurance And Insurance Claims and Options - 25th Oct 20
Best Pressure Washer Review - Karcher K7 Full Control Unboxing - 25th Oct 20
Further Gold Price Pressure as the USDX Is About to Rally - 23rd Oct 20
Nasdaq Retests 11,735 Support - 23rd Oct 20
America’s Political and Financial Institutions Are Broken - 23rd Oct 20
Sayonara U.S.A. - 23rd Oct 20
Economic Contractions Overshadow ASEAN-6 Recovery - 23rd Oct 20
Doji Clusters Show Clear Support Ranges for Stock Market S&P500 Index - 23rd Oct 20
Silver Market - 22nd Oct 20
Goldman Sachs Likes Silver; Trump Wants Even More Stimulus - 22nd Oct 20
Hacking Wall Street to Close the Wealth Gap - 22nd Oct 20
Natural Gas/UNG Stepping GAP Patterns Suggest Pending Upside Breakout - 22nd Oct 20 -
NVIDIA CANCELS RTX 3070 16b RTX 3080 20gb GPU's Due to GDDR6X Memory Supply Issues - 22nd Oct 20
Zafira B Leaking Water Under Car - 22nd Oct 20
The Copper/Gold Ratio Would Change the Macro - 21st Oct 20
Are We Entering Stagflation That Will Boost Gold Price - 21st Oct 20
Crude Oil Price Stalls In Resistance Zone - 21st Oct 20
High-Profile Billionaire Gives Urgent Message to Stock Investors - 21st Oct 20
What's it Like to be a Budgie - Unique in a Cage 4K VR 360 - 21st Oct 20
Auto Trading: A Beginner Guide to Automation in Forex - 21st Oct 20
Gold Price Trend Forecast into 2021, Is Intel Dying?, Can Trump Win 2020? - 20th Oct 20
Gold Asks Where Is The Inflation - 20th Oct 20
Last Chance for this FREE Online Trading Course Worth $129 value - 20th Oct 20
More Short-term Stock Market Weakness Ahead - 20th Oct 20
Dell S3220DGF 32 Inch Curved Gaming Monitor Unboxing and Stand Assembly and Range of Movement - 20th Oct 20
Best Retail POS Software In Australia - 20th Oct 20
From Recession to an Ever-Deeper One - 19th Oct 20
Wales Closes Border With England, Stranded Motorists on Severn Bridge? Covid-19 Police Road Blocks - 19th Oct 20
Commodity Bull Market Cycle Starts with Euro and Dollar Trend Changes - 19th Oct 20
Stock Market Melt-Up Triggered a Short Squeeze In The NASDAQ and a Utilities Breakout - 19th Oct 20
Silver is Like Gold on Steroids - 19th Oct 20
Countdown to Election Mediocrity: Why Gold and Silver Can Protect Your Wealth - 19th Oct 20
“Hypergrowth” Is Spilling Into the Stock Market Like Never Before - 19th Oct 20
Is Oculus Quest 2 Good Upgrade for Samsung Gear VR Users? - 19th Oct 20
Low US Dollar Risky for Gold - 17th Oct 20
US 2020 Election: Are American's ready for Trump 2nd Term Twilight Zone Presidency? - 17th Oct 20
Custom Ryzen 5950x, 5900x, 5800x , RTX 3080, 3070 64gb DDR4 Gaming PC System Build Specs - 17th Oct 20
Gold Jumps above $1,900 Again - 16th Oct 20
US Economic Recovery Is in Need of Some Rescue - 16th Oct 20
Why You Should Focus on Growth Stocks Today - 16th Oct 20
Why Now is BEST Time to Upgrade Your PC System for Years - Ryzen 5000 CPUs, Nvidia RTX 3000 GPU's - 16th Oct 20
Beware of Trump’s October (November?) Election Surprise - 15th Oct 20
Stock Market SPY Retesting Critical Resistance From Fibonacci Price Amplitude Arc - 15th Oct 20
Fed Chairman Begs Congress to Stimulate Beleaguered US Economy - 15th Oct 20
Is Gold Market Going Back Into the 1970s? - 15th Oct 20
Things you Should know before Trade Cryptos - 15th Oct 20
Gold and Silver Price Ready For Another Rally Attempt - 14th Oct 20
Do Low Interest Rates Mean Higher Stocks? Not so Fast… - 14th Oct 20
US Debt Is Going Up but Leaving GDP Behind - 14th Oct 20
Dell S3220DGF 31.5 Inch VA Gaming Monitor Amazon Prime Day Bargain Price! But WIll it Get Delivered? - 14th Oct 20
Karcher K7 Pressure Washer Amazon Prime Day Bargain 51% Discount! - 14th Oct 20
Top Strategies Day Traders Adopt - 14th Oct 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

The Fed Does Not Care About the Dollar, Easy Money is Here to Stay

Interest-Rates / US Interest Rates Oct 17, 2009 - 02:03 AM GMT

By: Mike_Larson

Interest-Rates

Best Financial Markets Analysis ArticleEvery so often, someone decides to pick a fight with me over the Federal Reserve. They say I’ve got it all wrong. They say the Fed is going to prove its mettle. They say that foreign central banks are crying “Uncle” over the dollar, and that this will force the Fed to reverse course and start raising rates.


Folks, that’s just hokum.

Bunk.

Hogwash.

B.S.

Pick whatever term you’re comfortable with!

To those who argue otherwise, I would simply reply that you have to get into the “Fed’s head.” You have to understand what’s driving their approach to policymaking. The underlying principle is this: They are more afraid of a relapse in the economy than any big outbreak in inflation.

Fed Speeches Make it Clear That Easy Money Is Here to Stay

Gold continues to hit new highs as worried investors dump the dollar.
Gold continues to hit new highs as worried investors dump the dollar.

The Fedheads who are in power right now are Ivory Tower policy wonks. They simply do NOT care that oil prices have more than doubled off their lows … that gold is zooming to new highs almost every day … or that the dollar is circling the drain.

Instead, they’re the type of people who IGNORE market signals like those. They focus on traditional economic indicators, such as figures on capacity utilization, unemployment, and consumer prices.

Don’t believe me? I can’t understand why. Every few days, we get even MORE reinforcing proof that I’m on the right track.

Take Fed Vice Chairman Donald Kohn. He just gave a speech in St. Louis to the National Association of Business Economics. In describing the economy, he had the following nuggets to share …

“The substantial rise in the unemployment rate and the plunge in capacity utilization suggest that the margin of slack in labor and product markets is considerable …

“Businesses have been aggressively cutting costs not only by eliminating jobs, but also by cutting back increases in labor compensation …

“Even as the economy begins to recover, substantial slack in resource utilization is likely to continue to damp cost pressures and maintain a competitive pricing environment. I expect that the persistence of economic slack, accompanied by stable longer-term inflation expectations, will keep inflation subdued for some time …

“The financial headwinds are likely to abate slowly, restraining the economic recovery.”

There’s nary a mention of market signals … nor a hawkish statement among them. Kohn is clearly not “prepping the battlefield,” so to speak, for an interest rate hike.

Or how about St. Louis Fed President James Bullard? He said in a Bloomberg radio interview on Monday that “you want to see the economy start to recover in all its dimensions, output and trade” before you raise interest rates.

Judging by the minutes of their recent meeting, it seems that the Fed just doesn't care.
Judging by the minutes of their recent meeting, it seems that the Fed just doesn’t care.

In English, that means the Fed won’t raise rates until unemployment starts dropping notably. Bullard went so far as to say that a falling unemployment rate was a “prerequisite” to boosting interest rates.

The problem with that thinking is that unemployment is a lagging indicator. Inflationary pressures could already be building — and the asset markets could already be bubbling out of control — long BEFORE the unemployment rate drops sharply.

Meanwhile, the just-released minutes of the Fed’s late September meeting show that officials were actually considering INCREASING the size of their mortgage purchase program!

The Fed has already committed to buy a whopping $1.25 trillion of mortgage-backed securities to drive rates lower. That version of “quantitative easing” is hammering the dollar, and the market had been looking for a signal the Fed might back off.

So judging from the minutes … the Fed just doesn’t care.

Fed Mantra: Avoid the Great Depression-Style “Double Dip”

You simply have to understand that the Fed is operating from the “Great Depression” playbook. They’re deathly afraid of a 1937-38 type scenario where, they believe, tighter monetary policy helped contribute to a substantial double dip in the U.S. economy.

This is what I call the “Paul Krugman” view. The Nobel Prize-winning economist (who writes for The New York Times) reiterated in South Korea this week that he thinks it’s way too early to cut back on the “Free Money, Now and Forever” regime. Specifically, he said:

“Under the best of circumstances we’re going to have years before we return to anything that approaches reasonable levels of employment in the major advanced economies … that means staying with these very nonstandard policies for an extended period. It means keeping interest rates close to zero for a very long time.”

The Fed's irresponsible monetary policies are squeezing the life out of the dollar.
The Fed’s irresponsible monetary policies are squeezing the life out of the dollar.

I will tell you flat out that this is going to end in disaster! The Fed has now helped inflate two gigantic asset bubbles with its reckless easy money policies. I have zero doubt they’ll screw it up again — and that things will blow up in our faces … again.

But you simply can NOT jump the gun. The next bust will only occur when policymakers change course, the bond market blows up, or we get, say, a concerted effort to bolster the greenback by virtually every central bank in the world.

I see zero signs of that happening. So as long as that’s the case, and the Kohn-Krugman school of thought is guiding policy in Washington, you have to stick with the carry trade mentality.

That means you can’t really short the stock market for more than a quick trade, and in select special situations. You have to favor emerging market stocks and foreign bonds. You have to write the dollar off. And you have to stick with gold and other hard assets that can hold their value in a free-money regime.

Until next time,

Mike

This investment news is brought to you by Money and Markets . Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com .

Money and Markets Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

duke
17 Oct 09, 09:29
The fed do not care about the dollar

In the sixties an ave. wage was about $100.00 a week. That meant a man was making around 3 oz of gold a week @ $35.00 per week. How many men are now making $3,000 a week to afford that same gold but still perform the same quality of service, manufacturing, or production


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules