“I’m not sure why they think they know that it’s transitory. How do they know that when there’s plenty of money printing that’s been going on and we’ve seen commodity prices going up really massively? There’s plenty of indicators that suggest that inflation is going to go higher, and not just on a transitory basis, for a couple of months. So we’ll see how the Fed is trying to paint the picture, but they’re guessing.“ Jeffrey Gundlach, DoubleLine Capital
“Guessing” is giving the Fed the benefit of the doubt. It’s more of a declaration: inflation is not and will not be an issue. And I doubt there’s anything that would shift their approach. Our central bank has its heels firmly dug in. Monetary policy will remain ultra-loose, while their communications strategy at this point is little more than rationalization and justification. I can only assume they are fearful of the consequences of puncturing Bubbles. It’s been only 13 months since a near financial meltdown.
The deflating stock market Bubble was surely troubling for the Fed; money market fund liquidity issues concerning. The run on corporate bond and equities ETFs must have been scary – illiquidity and dislocation in the Treasury market darn right horrifying. After all, an unwind of Treasury market (and fixed-income) leverage would surely bring this entire historic party to an unceremonious conclusion. Policy must kick that can down the road as far as possible.
We’ve witnessed a historic experiment in monetary management go completely off the rails. Future historians will surely be confounded. They will see recklessness and policy negligence. Where was the oversight? Were there no checks and balances? How could a small group of unelected officials just create Trillions out of thin air – Trillions of dollars that fueled history’s greatest speculative manias?
With the potential momentous impact of monetary policies, central banking by its nature must be a conservatively managed institution. No big experiments. No big mistakes. Err on the side of prudence and caution. Never take your eye off money and Credit.
There is no basis for believing that massive “money printing” is a reasonable solution to any problem. History, meanwhile, is replete with inflationary catastrophe. Inflationism has a long list of spectacular failures. Monetary stability is fundamental to stable prices, markets, economies, societies and governments. Bubbles are dangerous phenomena that must be contained early – before risks become so great as to make them untouchable. (more…)