by Ed Bugos, Dollar Vigilante:
The cat is out of the bag.
CNBC asks, “Fed-in-a-box: Will there ever be a good time?”
With the economy slowing around the world Goldman Sachs has toned down its bullish rhetoric on the stock bull, holding out hope, however so objectively, that “Flat is the new up”. Concern about the economy has begun to mount too. And mainstream pundits have begun to realize that the Fed is stuck. It risks waking the inflation genie by keeping rates low for too long on the one hand, but it can’t raise rates with the threat of deflation looming on the other. From its point of view, price instability on the down low is just as bad as instability when prices are rising too fast.
The US central bank is trapped in its historic extreme cheap money policy because low inflation and full employment are not supposed to occur at the same time! For any normal person this would seem like a terrific thing. Unfortunately, it is an illusion. The only reason it exists is due to an abnormally low interest rate policy. However, in the Fed’s eyes, it’s just another phillips curve paradox. Only it is the opposite of stagflation. Instead of inflation and unemployment both being paradoxically high they are both paradoxically low! Or such was Yellen’s analysis last week, as she tried to build a case for keeping interest rates low even if unemployment fell below 4.9%.
In classic fedspeak such paradoxes limit what the central bank ‘can do’.
But right there lies a crucial problem.
Election commercials have exploded in recent months as Canadians are preparing to embark upon the polls to vote in their favorite lesser evils, and the race for who gets to be president of the collapsing empire of debt and fiat in 2016 has already started. The platform pleas all have the same theme: ‘pick me to “run” the economy.’ The thing is, that’s how the Fed got into a box.
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