Federal Reserve Policy Failures Are Mounting

By Lacy H. Hunt, Ph.D., Economist

The Fed's capabilities to engineer changes in economic growth and inflation are asymmetric. It has been historically documented that central bank tools are well suited to fight excess demand and rampant inflation; the Fed showed great resolve in containing the fast price increases in the aftermath of World Wars I and II and the Korean War. In the late 1970s and early 1980s, rampant inflation was again brought under control by a determined and persistent Federal Reserve.

However, when an economy is excessively over-indebted and disinflationary factors force central banks to cut overnight interest rates to as close to zero as possible, central bank policy is powerless to further move inflation or growth metrics. The periods between 1927 and 1939 in the U.S. (and elsewhere), and from 1989 to the present in Japan, are clear examples of the impotence of central bank policy actions during periods of over-indebtedness.

Four considerations suggest the Fed will continue to be unsuccessful in engineering increasing growth and higher inflation with their continuation of the current program of Large Scale Asset Purchases (LSAP): Continue reading "Federal Reserve Policy Failures Are Mounting"

A Monetary Master Explains Inflation

By Terry Coxon, Senior Economist

[Ed. note: One of the best things about being a partner in a research firm employing about 40 analysts is that I have unfettered access to really smart people. While we have a great team with expertise across the spectrum, when it comes to monetary matters, my go-to guy is Terry Coxon, a senior editor for our flagship publication, The Casey Report.

Terry cut his teeth working side by side for years with the late Harry Browne, the economist and prolific author of a number of groundbreaking books, including the 1970 classic, How You Can Profit from the Coming Devaluation. The timing of Harry's book should catch your eye, because his analysis that the dollar was headed for a big fall was spot on. Anyone paying attention made a lot of money. Continue reading "A Monetary Master Explains Inflation"

Despite Declining Deficit, Foreigners Aren’t Bailing Us Out, So the Fed Will Keep QE Going

By Bud Conrad, Chief Economist

The basic imbalance driving our economy is the government deficit, which spun out of control as a result of the Credit Crisis of 2008/9. But the sequester, improving tax base, lower interest rate, and elimination of stimulus spending have caused the big government deficit, while still extreme, to drop to half its previously nosebleed levels. Continue reading "Despite Declining Deficit, Foreigners Aren’t Bailing Us Out, So the Fed Will Keep QE Going"

Physical Gold and Paper Gold Battling for Supremacy

The Gold Report: In your latest newsletter, you advocate that gold investors pay close attention to the Federal Reserve meeting taking place on June 18. What are you looking for out of that meeting?

Brien Lundin: The main driver for gold right now is quantitative easing (QE). An investor trying to figure out where the gold market is heading in the near to intermediate term needs to focus on QE. Investors should look for clues to the future prospects of the Fed's QE programthat's what's going to drive gold in the short and intermediate term. The question really is: To QE or not to QE? The next Fed meeting will be a prime indicator of that, and the one after that and the one after that.

My general view is that the reports of a resurgent U.S. economy are way ahead of themselves and some data points are indicating that the recovery is not that robust and may even be in danger. The jobs numbers will shed some light on this. If such a scenario develops, then the snap back for gold would be pretty dramatic. A weakening U.S. economy would be bullish for gold because it's bullish for continued QE, and that's the real factor for gold going forward.

TGR: Besides the jobs numbers and the Fed meeting minutes, what indicators are you watching to get some insight into whether the economy really is improving? Continue reading "Physical Gold and Paper Gold Battling for Supremacy"

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Officials warn of looming crisis for economy

By MARTIN CRUTSINGER
AP Economics Writer

(AP:WASHINGTON) The Federal Reserve is open toward taking further action to support the struggling U.S. economy. But minutes of the Fed's June meeting show policymakers are at odds over whether the economy needs more help now.

A few said the economy may already require additional support. But several others noted that further action "could be warranted" if the recovery lost momentum, if risks became more pronounced or inflation seemed likely to run below the committee's target.

Investors appeared to be disappointed by the division within the Fed. Continue reading "Officials warn of looming crisis for economy"