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Politics : Formerly About Advanced Micro Devices

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To: longnshort who wrote (922131)	2/23/2016 4:50:58 PM
From: RetiredNow	1 Recommendation Read Replies (1) of 1577893

The Fed's Nightmare Scenario Is Becoming Reality realclearmarkets.com <excerpt> The correlation between monetary tightening and economic deceleration is not accidental. As it had been in Japan before us, the unprecedented stimulus that has been delivered by central banks, in the form of zero percent interest and trillions of dollars in quantitative easing bond purchases, failed to create a robust and healthy economy that could survive in its absence. Our stimulus, which was launched in the wake of the 2008 crash, may have prevented a deeper contraction in the short term, but it also prevented the economy from purging the excesses of artificial boom that preceded the crash. As a result, we are now carrying far more debt, and the nation is far more levered than it was prior to the Crisis of 2008. We have been able to muddle through with all this extra debt only because interest rates remained at zero and the Fed purchased so much of the longer-term debt. In the past I argued that even a tiny, symbolic, quarter point increase would be sufficient to prick the enormous bubble that eight years of stimulus had inflated. Early results show that I was likely right on that point. The truth is that the economy may be entering a period of "stagflation" in which very low (or even negative) growth is accompanied by rising prices. This creates terrible conditions for consumers whereby prices rise but incomes don't. This leads to diminished living standards. The recent uptick in inflation does not somehow invalidate all the other signs that have pointed to a rapidly decelerating economy. Just because inflation picks up does not mean that things are getting better. It actually means they are about to get a whole lot worse. Stagflation is in fact THE nightmare scenario for the Fed. If inflation catches fire now, the Fed will be completely incapable of controlling it. If a measly 25 basis point increase could inflict the kind of damage already experienced, imagine what would happen if the Fed made a real attempt to raise rates to get out in front of rising inflation? With growth already close to zero, a monetary shock of 1% or 2% rates could send us into a recession that could end up putting Donald Trump into the White House. The Fed would prefer that fantasy never become reality.

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