Deflationary Forces Stymie the Fed's Economic Rescue Efforts

By Elliott Wave International

The Federal Reserve's efforts to rescue the economy have been historically aggressive, starting with the initial round of quantitative easing in 2008 and continuing through 2013.

The central bank's assets have skyrocketed due to the Fed's bond purchases, which you can see clearly in this eye-opening report that Robert Prechter presented to the Market Technicians Association and his Elliott Wave Theorist subscribers.

Editor’s Note: Visit Elliott Wave International to download the rest of the 8-page, free report, How to Protect Your Money When the U.S. Debt Bill Comes Due.

The main reason investors are expecting runaway inflation is illustrated in [the chart above], which shows the value of assets held at the Federal Reserve. The Fed has been inflating the supply of dollars at a stunning 33% annual rate over the past five years. ... [N]o wonder investors expect inflation and have aggressively positioned for it.

Look just about anywhere else, however, and you will see subtle evidence of deflationary pressures. Given knowledge only of the Fed’s inflating, many people would expect the Producer and Consumer Price Indexes to be rising at a rate of 33% annually. But, as you can see in Figure 2, the PPI’s annual rate of change is stuck at zero and the CPI has been rising at only a 2% rate.

The Elliott Wave Theorist, July-August, 2013

In an interview at the recent San Francisco Money Show with financial author Jim Mosquera, EWI's Chief Market Analyst Steven Hochberg explains why the Fed has gotten so little in return from its stimulus programs. Here's a brief excerpt from the interview published on Aug. 18 on the website.

Question: The Fed wizards have been pushing buttons and pulling levers rather furiously since 2008. The discount rate is rock bottom, and the Fed balance sheet has swelled to the tune of trillions. What button is left for them to push?

Steve Hochberg: That is a really interesting question the way you phrased it because the fact that they have been pushing buttons and have gotten very little in return tells us … that the Fed is not in control. The Fed does not control the markets, and it doesn’t control the economy. Both are bigger than the Fed.

You say they have been doing this furiously. They have been doing this historically! Yet if you look at inflationary measures, such as the Personal Consumption Expenditures, which is the Fed's favorite way of measuring inflation, it's bumping along at 1%.

We have had historic fiscal and monetary stimulus and yet no inflation. Why? The forces of deflation are overwhelming the forces of inflation. The Fed dropped interest rates in 2000 to 2002 and that did not stop the Nasdaq from dropping 78%. The Fed dropped rates from 2007 to 2009 and it did not stop the Dow from going down 59%. There is historical evidence that the Fed does not control the markets but that the markets control the Fed.

As the next leg of the bear market starts unfolding, they are going to do more unconventional things. Things will accelerate to the downside when the public realizes the central banks aren't in control.

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This article was syndicated by Elliott Wave International and was originally published under the headline Deflationary Forces Stymie the Fed's Economic Rescue Efforts. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

9 thoughts on “Deflationary Forces Stymie the Fed's Economic Rescue Efforts

  1. ON THE HUGE BANKS Bank security. Just yesterday I had a £141 on-line payment refused on my Barclays account. Earlier in the day I had made one other on-line payment of £200 and a telephone payment by card of £17. Nothing extraordinary. While holding the on-line transaction, I rang the bank, was told it had been blocked by the anti-fraud people. All the time replying 'yes' to 'do you need more time' from the company with whom I had the transaction, I was put through to the anti-fraud people and had to go through for a second time the rigmarole of security questions and all that. Also I had by now received a text from Barclays asking me to confirm that the transaction was OK, and then another saying that my card could be used again in 15 minutes' time. Then on the phone, I was given the all clear and told that my card could be used again in 5 minutes. Continuing to ask for more time for the transaction, I waited more than five minutes, to have the payment refused once more, and this time the transaction closed down. Fortunately I found that when I started it all up again, the company's system had retained all the necessary details so I did not have to go through all the very complicated stages again. At last my card was accepted. When I had asked Barclays why my payment had been refused after just two modest payments earlier in the day, they just said that there had been something suspicious. The company I was trying to pay was BT for goodness sake! (But no, I have no reason to believe that Big Brother State was involved!) I thank you Firozali A.Mulla

  2. 1The annual rate of inflation for the 17 countries that share the euro slowed unexpectedly to just 0.7 percent in October, the lowest rate in four years, raising fears the single currency area may tip into deflation -- a vicious circle of falling prices, wages and output.

    2RBS economist Richard Barwell, who like many other ECB watchers had previously been expecting eurozone interest rates to remain on hold at their current record low of 0.50 percent for the time being, said the data will "be sufficient to force the governing council into action."

    3The rate-setting council holds its regular monthly policy meeting on Thursday.

    4 Barwell pointed to recent comments by Belgian central bank governor, Luc Coene, who sits on decision-making body.I thank you FirozaliA.Mulla DBA

  3. ARE we breaking the law??? Think you're confused by "Obamacare"? It's roiling Capitol Hill behind the scenes, too.
    Members of Congress are governing themselves under President Barack Obama's signature law, which means they have great leeway in how to apply it to their own staffs.

    For House members and senators, it's about a section of the law that may - or may not - require lawmakers to toss some staffers off their federal health insurance and into the Affordable Care Act's exchanges. The verdict from congressional officers is ultimately that lawmakers, as employers, have discretion over who among their staffs gets ejected, and who stays. And they don't have to say who, how many or why.

    What they all say is this:

    "I followed the law," said Sen. Barbara Mikulski, D-Md., echoing Senate Majority Leader Harry Reid and others.

    But the law as written is open to broad interpretation, inspiring a bureaucratic web of memos, regulations and guidance that members of Congress say allows them to proceed on the question of staffers and coverage as they see fit. Lawmakers this week were required to finalize plans for who stays on federal insurance and who's forced onto an exchange.

    The Affordable Care Act, signed into law in 2010, only requires members of Congress and their "official" staff members to get health insurance through one of the law's marketplaces, or exchanges. Guidance memos from the Senate's financial clerk and the House's chief administrative officer, obtained by The Associated Press, define "official" aides as those who work in the lawmakers' personal offices. Committee and leadership aides, then, would be exempt and could stay on the federal health insurance program.

    Unless lawmakers decide otherwise. I thank you Firozali A.Mulla DBA

  4. No wonder, it's an ellliott wave guy making the "deflation" phony argument, no surprise there at all.

    Pay and compare my bills every year and tell me how much "deflation" I am seeing.

  5. And he also wrote: "The main reason investors are expecting runaway inflation is illustrated in [the chart above], which shows the value of assets held at the Federal Reserve. The Fed has been inflating the supply of dollars at a stunning 33% annual rate over the past five years. ...". Which brings me to this point: This whole economic, financial and bogus "stock rally" SHAM the Fed has created is a pure float based on printed money and debt flooding, NOT solid, real economic growth. When the whole SHARADE collapses under its own weight, it is going to be a "big bang".

  6. Deflation deferred is not the "growth" these con men are selling. When this charade ends watch asset values revert to their true levels. Stocks will get a 50% haircut. Real estate? Look at any list of asking prices, then remove the first digit - that is what cash buyers will pay in the washout.

    The good news is that an entire generation will learn a lesson about debt and central planning and economies everywhere can experience real growth again.

  7. This article is a perfect example of why you cannot trust any single source to provide you with complete information.

    "But, as you can see in Figure 2, the PPI’s annual rate of change is stuck at zero and the CPI has been rising at only a 2% rate."

    If you are trying to get the truth out to the public and trying to sustain your own credibility, why use factually false and irrelevant government statistics? Anyone who knows anything about the economy knows that, using 1980-based CPI criteria, the present inflation rate hovers near ten percent -- as documented at the following web site:

    I am ambivalent regarding the inflation versus deflation debate. The truth is that we suffer from both curses as the result of morons intervening with the free market. But why provide false government-based information to make your point? After all, it is the government that created the problem.

  8. This is far from reality as the Grameen Bank by Dr. Yunus in Begladesh started the bank for the poor and he went all the way to the West and East and never lost a penny

    About Grameen Foundation | Grameen Foundation | Connecting the‎
    While Professor Yunus is a founding director and a current director emeritus of our board, Grameen Foundation and Grameen Bank are independent .. For years people have been talking about creating an Islamic bond outside the Islamic world, but it's never quite happened. Changing that is a question of pragmatism and political will. And here in Britain we've got both.

    David Cameron will on Tuesday unveil a £200m bond that can be bought by Islamic investors in the first move of its kind by a non-Muslim country. I thank you FirozaliA.Mulla DBA

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