As I pointed out in late 2011 (see here) that the economy needed another round of QE in 2012 to sustain the current trend of mal-investments or risk collapsing. Well we got it. For the complete FED video press conference of September 13, 2012 please see video below.
Highlights from Video:
- The FED pledges to buy $40 Billion per month UNTIL ECONOMY IMPROVES!
- FED to continue with Operation Twist
- Zero-Interest rate policy to be extended to 2015.
- Additional “communication tools” and “balance sheet actions” to be provided to markets if necessary.
In other words, if the economy does not improve the FED will intervene and continue to print $40 Billion a month. In other words by 2015, this could mean $800 Billion to buy up mortgage-backed securities. The Fed also announced additional “Balance Sheet and Communication Actions” if needed for the markets. These FED policies will to continue to create mal-investments and further undermine the economy from reckless low interest policies. It now seems the final strategy of the policymakers is in sight, the endless tug of war debate between inflation and deflation is starting to show some clear signs who is right. Prepare for inflation! Ben Bernanke has really earned his title as helicopter Ben.
The news media works in tandem “communication actions”, as per our savior, such that it becomes very difficult for the average person to connect the dots on what’s really going on: most people truly believe that their governments are spending money rationally and responsibly. Ask yourself why is the US government the largest debtor Nation in the history of the world, as pointed out in a previous article, the US debt is growing at a pace of 10 Million a minute.
If stimulus money can be likened to drugs, then the drugs from QE2 died off, as they officially ended in June 2011. The new drugs (QE3) will fuel the stock market and keep the sick economy going. At this stage, the economy is past the stage of being a drug addict, and entering into the final stages of a drug overdose.
In order for a drug addict to come out clean, he must stop taking drugs, plain and simple. However, that is usually not the case, given the difficulty of such a task. The addict will need to feel the “pain” of the withdrawal and eventually he will accustom himself to a normal and healthy lifestyle. The economy, just as any another drug addict, needs to feel the “pain”: this means more jobs will be lost and the corrective recession will continue. Companies with failed business models will fail and should be taken over by companies with proven and efficient models. In this situation, sound money is restored and jobs will eventually grow in the private sector.
Every time money is printed by governments, it grows the size of government and creates more cronyism. This results in a smaller private sector and makes it much more difficult for the private sector to create jobs, and grow the economy. Thank you very much Ben!
How are you planning for inflation? Post your thoughts below.