Money Printing Is Our Best Bet
Monday started out with a bang! There were strong earnings reported from some big banks, manufacturing rose for the 12th straight month, construction spending edged up (mainly due to government projects) and the stock market jumped 200 points. Problem solved—economy back on track, right? Wrong! Tuesday, everything changed. Some of the auto manufacturers did not have as much earnings growth as anticipated, data was released that consumers are reluctant to spend money; and even though manufacturing rose for 12 straight months, new orders dramatically tapered off during the last three. Yesterday, a Reuters story spun the sour economic news this way, “Even though recent data has suggested slowing growth, most economists see low probability of another severe downturn in the near future.” (Click here for the complete Reuters story.)
I don’t know which “economists” Reuters is talking to because everybody from Paul Krugman to Alan Greenspan is warning about deflation and a double dip recession. Economist John Williams at shadowstats.com has been forecasting another severe downturn in the economy for months, despite nearly $4 trillion in stimulus that was pumped into the banks and overall economy. In his most recent report, Williams says, “Only politicians and Federal Reserve officials without viable options and Wall Street hypesters would claim that the current structural economic depression could be turned fundamentally by short-lived stimulus measures. Now, as the unaddressed structural issues reassert themselves, the problems at home are at the base of the renewed systemic woes. . .”
So, while the stimulus is wearing off, the contraction is intensifying. According to Williams, this is producing some unexpected consequences such as, “. . . additional explosive growth in the federal deficit, an unexpected further surge in Treasury funding needs, and unexpected renewed solvency concerns for the banking system. Such conditions are bad news for the U.S. equity and credit markets.” I interpret this to mean stocks and bonds are going to take a hit sooner than later. Long term, think dollar lower and gold higher. Your main concern right now should be a return of capital and not a return on capital.
How will the Federal Reserve battle a contracting economy and dreaded deflation? Look no further than St. Louis Fed President James Bullard. In a CNBC interview last Friday, he said, “Quantitative Easing is our best bet.” Quantitative Easing, or QE, is money printing–pure and simple. Bullard wants more inflation, and with interest rates already at nearly zero percent, there is little else the Fed can do. Don’t think Bullard is “off the reservation” because his boss, Ben Bernanke, recently told Congressional leaders, “. . . we remain prepared to take further policy actions as needed to foster a return to full utilization of our nation’s productive potential . . . .” (Click here to see more from Bernanke from a post called, Irrational Exuberance to Unusually Uncertain.)
Please watch the CNBC interview below of Mr. Bullard. To me, he appears anxious and nervous as he talks about wanting to produce more inflation!
If the Fed wants inflation, it will surely get it with massive amounts of money printing. Yesterday’s Wall Street Journal article echoes that thought by reporting, “A senior fund manager at bond-fund giant Pacific Investment Management Co. said Tuesday it is “extremely unlikely” the U.S. could see Japan-like deflation given that the Federal Reserve has the tools to combat a downward spiral in consumer prices.” (Click here for more on the story from the WSJ.)
So, the way it looks, there is definitely another plunge coming to the economy. That will be followed by more stimulus and money printing (QE) and another rise in the economy. At some point, this stomach churning roller coaster ride will come to an end. Let’s hope we don’t make the U.S. dollar puke in the process.
very good article Greg !
This gives me chills! We are screwed!
thanks Greg for all your watchdog work! Here in the peoples republic of Amherst my liberal neighbors have forgotten long ago that Lord Jeffery Amherst was a biological terrorist and Daniel Shays fought for the people and was the real Cause for the writing of the constitution. Perhaps because they remain tenured and blinded by the heights of their Ivory towers.
Me I’m just a conspiracy theorist without a degree in economics or gainful employment so I expect to be exiled like my neighbor Dan shays.
Need any contributors opinions from the trenches?
Give them a helping of Antonio’s Pizza (chicken and bacon) or some D.P. Dough before it goes through the roof in price. After they are done sticking their heads in the liberal sand near Puffer’s Pond they go have a protest about something completely useless.
This rant will only make sense to those who did some time in the liberal vacuum that is Amherst.
P.S. Lord Jeffrey Amherst never actually set foot in Amherst. He stopped in Hadley to give out blankets laced with Cholera to murder poor people.
One bright spot on the coming hyperinflation issue; one won’t have to stock up on toilet paper as for other crises; they’ll just be able to use the US Dollars they’ve accumulated!
Greg, I finally had time to watch the video. This guy wants to make changes to monetary policy monthly. How is a little deflation such a bad thing and a little inflation a good thing? Think about it. Inflation is the way the US Govt skips out on its debt, and robs its citizens of stored wealth; deflation makes the Govt pay full price.
The Govt fears that it will cause the ponzi scheme to fail faster. It does have a big impact on US Exports but does anyone believe we are going to “export” our way out of this crisis? I bet that a MJ store out in LA would make a fortune, if they could get the seeds of what Obama was smoking when he said that. How many Boeing Aircraft, Starbucks and McDonalds can we send over seas anyway? What else do we make here?
I’m praying these guys pull a rabbit out of the hat and that’s literally what it’s going to take. Our current debt and obligations are about 450% of GDP. What does that mean? IF every dollar from production generated in the USA was paid to our debtors, everyone here would have to give EVERY dollar generated to the government for FOUR and HALF years just to get back to even. Of course that means the Government could not spend any money during the four and half years either.
By the way, thanks again Greg for what you do. You sure can’t find a realistic picture of the economy on NBC, CBS, CNN or ABC.
Deflation can’t be control by anyone but the buyer. The old baby boomers like me, don’t need anything and so many young people don’t make a living wage. It’s going to take a long time to even things out. Wall Street needs to give up their big profits so the workers can have a living wage to go out an buy something. It’s a catch 22. I would like to see the good old days when the owner of the company was proud of what his company built. I work for this construction company one of the best in Seattle. The three men that built the company were just tradesmen like me. Anyway, they sent there kids off to collage like most parents want for there kids. When the kids took over the company they started to cut this and that to turn more profit, this is what they learned in school. They got fast money and lost there good name and sold out. I can still make a phone call and have a job tomorrow, a good name is everything next to land.
Amen, Bob. My daddy taught me that you can ruin your good name or reputation easily and spend the rest of your life trying to get it back. A good reputation is worth its weight in gold. He also taught me that you are known by the company you keep. The people that our government officals hang out with are troubling
Thank you Greg for another informative and education piece we don’t see in the MSM. I always look forward to reading the comments of your readers too.
I heard you on Suss’ show. You were great as usuall. Your ski jump analogy was right-on. During the Roosevelt administration, the economy did the same thing. From what I have read, Roosevelt would stimilate the economy, the economy would stop nose-diving for a short time, and then it continued the plunge into the great depression. And, since the cure worked so well (ha-ha), the administration used the same tactics again with similar results.
Is history repeating itself?
We have been communicating on your website for about 8 months. For the most part, all of your articles and opinions have come true. Some of the minor issues did not play-out quite as predicted. But, the overall outcomes are panning out as predicted.
WASS (we are so screwed!)
I have read about or heard the rubber band analogy that George wrote about. The laws of thermodynamics can be used to analogize an economy; after all, there are no perpetual motion machines.
When labor combined with raw materials creates a product that is worth more than the resources expended to make the product, we have a growing economy. It is that simple. Governement can’t do that.
You know, an old bumper sticker from the 70s about hitch-hiking sums up the problem quite well: Cash, Grass, or Ass–Nobody Rides for Free.
There are no free-rides. Obama plans to give a free-ride to lots of people, including illegal aliens, to create a voter base that keeps the Democrats in power for decades. The man-child does not realize that he will kill our economy and might create the scenario in Paul Craig Robert’s article.
I think they are going for the inflation because that will FORCE plp to spend. They will get rid of their $ ASAP for anything else… stocks , “Stuff” like Ipods or anything that starts with I , real estate , cars .
Plp will go and spend because they will see that saving makes no sense and its better to spend it.
Because of that the GDP will grow , FED will be happy the Prez will go on TV and say look the GDP is up , plp are spending and all is well.
Meanwhile plp are going to be broke (except those who are saving in foreign currency , gold and silver).
I think you should do your next article on “how to buy a silver and gold”
It should be like a guide or that one of those book for dummies.
Everyone talks about it but no one shows a easy way to do it (where , what )
I agree we are screwed. QE is just kicking the can down the road. So if they are going to print. I say,” Damn the topedoes, Full speed ahead” What does it matter if we spend a trillon here or there. If it is going to be a lemon, lets make lemonade. Give everyone $200,000 to buy a home and a car and let the Fed Print away. We are going in the ditch anyway. Lets screw the bankers who put us here. They knew what they were doing. It is only paper. If the USA can infate its debt away, why can’t its people do the same? Oh! the Fed is a private bank? Do it or get out! I can here them now, that they gave us a $300 refund. IRS/Banks are all the same to me. Pirrahas, all of them. A $60,000 grant to study ants while that money could be used for education. Paybacks are going to be a [email protected]@@@.
Former Fed Chairman Alan Greenspan said that the push by congressional Republicans to extend the Bush tax cuts without offsetting the costs elsewhere could end up being “disastrous” for the economy.
In an interview on NBC’s “Meet the Press,” Greenspan expressed his disagreement with the conservative argument that tax cuts essentially pay for themselves by generating revenue and productivity among recipients.
“They do not,” said Greenspan.
“I’m very much in favor of tax cuts but not with borrowed money and the problem that we have gotten into in recent years is spending programs with borrowed money, tax cuts with borrowed money,” he said. “And at the end of the day that proves disastrous. My view is I don’t think we can play subtle policy here.”
The comments from the former Fed chief were an elaboration of a position he outlined in an interview earlier in the week. Speaking with PBS’ Judy Woodruff, Greenspan expressed his opposition to passing legislation that would hold tax rates steady (under law the tax cuts Bush passed ten years ago are going to expire, thereby bringing rates back to Clinton-era levels). President Obama has pledged to continue the tax breaks for those individuals making under $200,000 and those families earning less than $250,000.
But Republicans want the entire package kept in place. Even so, they have declined to say how they would pay for it, saying, in part, that keeping the Bush tax cuts in place will pay for itself.
In addition to throwing cold water on that theory, Greenspan also weighed in on broader economic issues and trends. The former Fed Chairman relayed some sobering economic predictions, saying he expected the nation’s unemployment rate to remain at its current level, mainly because there were few tools left to change it.
“I see it [as] we just stay where we are,” he said. “There is a gradual increase in employment but not enough to reduce the level of unemployment …There is nothing out there that I can see which will alter the trend or the level of unemployment in this country.”
All very good comments. I do not see us staying even or bouncing to some equalibrium point or snapping back. We are in unchartered waters. the dollars involved are ven different than problems japan had that took them longer than a decade to get out of some say they are still struggling.
We DO NOT know what will happen because we have a deliberate atempt to TOTALLY collapse the economy so we can “change” to a “hope” economy. It is very obvious. AGAIN alot of GREAT comments and smart comments. Some way beyond economics 101. We are talking about monetary Manipulation 317. You must take economics 101, finance 102, government 203, treason 405, How to stay out of jail 606 before taking Monetary Manipulation 317
So YES we will se deflation in certain areas and certain products for blocks of time. MFG are trying to keep key people today more than demand. Demand is down across the board. This is called survival. As mfg c=have less and less to compete against that and other market factors are geared towards HYPER INFLATION. Look at Wheat this week. Look at Putin and wwhat his reply to globalization. “We will keep out wheat.” Look at RICE. BUY NOW!!!!!!!!
Listen to the WATCHDOG he is telling what to do. He is NOT trying to scare you but prepare you. OBAMA hates AMERICA and the only way he can “CHANGE” us is by making us hungry. He is looking to EAT every mortgage in AMERICA that is upside. Soooooo if you owe 225,000 and your house is now worth 200,000 Fannie & Freddie will eat your 25,000 and refinance at lower rate.
We are in BIG trouble. BUY SILVER, Food, Water and AMMUNITION. Obama wants us fighting each other so he can continue his destruction. If we DO NOT start fighting ourselves he and SEIU, ACORn The Black Panthers, The Tides Foundation and george Soros money will start the war.
“They must think youre STUPID”
I went out today and picked up more silver, 100 bucks worth of junk dimes, to add to the 1/10th ounce gold from yesterday. Not much I know, but at this stage of the game, I don’t want to be caught holding any fiat when “it” hits the financial fan. Also put a chunk of paycheck into more dehydrated food for the larder.
I still see most of the people around me shaking their heads at the dire financial news, but they don’t do anything but continue partying and watching TV. I fear for them but, they have the info, the rest is up to them.
Damn Greg, From MAKE Believe death of an economic powerhouse to news pointing out we have peaked economically again and are headed in an uncontrollable decline. My economics professor, a well known published author [yes he’s even on Amazon.com], says that economies are systems that tend toward a natural equilibrium. When we try to force it one way or the other; it’s like stretching a rubber band and if we are not careful, the pent up energy snaps back toward the equilibrium. I think that the “rubber band” is at such a resistance point that it’s going to be an accelerated decline.