The Peter Schiff Show Podcast Frankenfed Finally Fears Its Own Monster – Ep. 303
Nov 23, 2017
41:07
Fed Fears Inflation Is Not High Enough
Fed statements drove the markets today; particularly the foreign exchange markets and the precious metals markets. First we got a quote from Janet Yellen early this morning in which she was talking about inflation. Her concern is that inflation isn't high enough. Here's and exact quote from Janet Yellen:
“It can be quite dangerous to allow inflation to drift down and not to achieve over time a central bank’s inflation target,”
Dangerous? Dangerous to whom? She also says that one reason it is dangerous is because inflation expectations are likely to drift down, too. So she's not only worried that inflation isn't high enough, but she is worried that people won't be worried about inflation. Why is low inflation dangerous?
What's so Bad About Low Inflation?
First of all, it's not even negative. She's not saying we are going to have deflation, which I don't think is bad anyway. She is just saying it is dangerous if we don't have enough inflation, meaning that if we have 2-2.5% inflation, we're out of the danger zone, but if we have 1.5% inflation, we're in this danger zone?
What is so dangerous about prices not going up? This is all a bunch of nonsense that the media just accepts. Now, I'll tell you why it is dangerous and for whom it is dangerous: The reason the Fed wants high inflation is so the next time they cut interest rates, they can create a negative rate. They know that the bubble is so big that just low interest rates are not going to do anything. This addict is so hyped up on this "sauce" that we have to get rates negative. Low interest rates are not enough. They've got to be negative.
Major Ramifications for the Reserve Currency
So the Fed has got to be able to get the Fed Funds Rate below the inflation rate, and they need it to be way below, because, let's say inflation is only 1% and they go to zero interest rates, well they have -1%! That's not enough! They might think we need -3% or -4%. Well, if zero is the lower bound, and you want rates to be -3% then you need to have inflation at 3% in order to get a negative 3% yield. Unless you want to go from the absurd to the ridiculous, and actually take rates negative, which would have major ramifications for the reserve currency,
I think the Fed is still reluctant to try that, but if they have to, they'll certainly give it a shot. They'll use that as the Hail Mary, but they'd rather keep that one in their back pocket. So they need room to be able to get interest rates to zero but have a high enough negative rate to try to provide the stimulus that they think helps the economy.
Collateral Damage in the Fed's Manipulation and Experimentation
But it doesn't help the economy. This is all their nonsense but they are willing to sacrifice American families. They are just casualties of war, collateral damage in the Fed's manipulation and experimentation. They are saying that we need to have higher inflation so that we can fight the next recession. Well, the next recession is going to be a lot worse, if in addition to unemployment, people are dealing with a rising cost of living. But as far as the Fed is concerned, that's OK, because the only way we can stimulate the economy is to make sure we sedate it by causing the cost of living in the U.S. to go up and the standard of living to go down.
Concerns About a Potential Buildup of Financial Imbalances
The other danger of inflation not being high enough is probably the stock market. Interestingly enough, later on in the day, the FOMC minutes were released, and in addition to expressing their concern about low inflation, they are also worried about the stock market. It's about time, but listen to this, I am reading a quote from the minutes:
"In light of elevated asset valuations and low financial market volatility, several participants expressed concerns about a...
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Fed statements drove the markets today; particularly the foreign exchange markets and the precious metals markets. First we got a quote from Janet Yellen early this morning in which she was talking about inflation. Her concern is that inflation isn't high enough. Here's and exact quote from Janet Yellen:
“It can be quite dangerous to allow inflation to drift down and not to achieve over time a central bank’s inflation target,”
Dangerous? Dangerous to whom? She also says that one reason it is dangerous is because inflation expectations are likely to drift down, too. So she's not only worried that inflation isn't high enough, but she is worried that people won't be worried about inflation. Why is low inflation dangerous?
What's so Bad About Low Inflation?
First of all, it's not even negative. She's not saying we are going to have deflation, which I don't think is bad anyway. She is just saying it is dangerous if we don't have enough inflation, meaning that if we have 2-2.5% inflation, we're out of the danger zone, but if we have 1.5% inflation, we're in this danger zone?
What is so dangerous about prices not going up? This is all a bunch of nonsense that the media just accepts. Now, I'll tell you why it is dangerous and for whom it is dangerous: The reason the Fed wants high inflation is so the next time they cut interest rates, they can create a negative rate. They know that the bubble is so big that just low interest rates are not going to do anything. This addict is so hyped up on this "sauce" that we have to get rates negative. Low interest rates are not enough. They've got to be negative.
Major Ramifications for the Reserve Currency
So the Fed has got to be able to get the Fed Funds Rate below the inflation rate, and they need it to be way below, because, let's say inflation is only 1% and they go to zero interest rates, well they have -1%! That's not enough! They might think we need -3% or -4%. Well, if zero is the lower bound, and you want rates to be -3% then you need to have inflation at 3% in order to get a negative 3% yield. Unless you want to go from the absurd to the ridiculous, and actually take rates negative, which would have major ramifications for the reserve currency,
I think the Fed is still reluctant to try that, but if they have to, they'll certainly give it a shot. They'll use that as the Hail Mary, but they'd rather keep that one in their back pocket. So they need room to be able to get interest rates to zero but have a high enough negative rate to try to provide the stimulus that they think helps the economy.
Collateral Damage in the Fed's Manipulation and Experimentation
But it doesn't help the economy. This is all their nonsense but they are willing to sacrifice American families. They are just casualties of war, collateral damage in the Fed's manipulation and experimentation. They are saying that we need to have higher inflation so that we can fight the next recession. Well, the next recession is going to be a lot worse, if in addition to unemployment, people are dealing with a rising cost of living. But as far as the Fed is concerned, that's OK, because the only way we can stimulate the economy is to make sure we sedate it by causing the cost of living in the U.S. to go up and the standard of living to go down.
Concerns About a Potential Buildup of Financial Imbalances
The other danger of inflation not being high enough is probably the stock market. Interestingly enough, later on in the day, the FOMC minutes were released, and in addition to expressing their concern about low inflation, they are also worried about the stock market. It's about time, but listen to this, I am reading a quote from the minutes:
"In light of elevated asset valuations and low financial market volatility, several participants expressed concerns about a...
Our Sponsors:
* Check out Avocado Green Mattress: https://avocadogreenmattress.com
* Check out Boll & Branch: https://boilandbranch.com/SCHIFF
* Check out Fast Growing Trees and use my code GOLD for a great deal: https://www.fast-growing-trees.com
Privacy & Opt-Out: https://redcircle.com/privacy