its risky to anticipate further qe, page-14

PeterPumkinhead

Thanks for sharing the chart.

In relation to the below point about Fed action to counter inflation

I"f the Fed were to take further action now while there is abundant spare capacity in the economy it may take many more years before inflationary effects were felt in the real economy (if ever). There is also the presumption among goldbugs that the Fed would not move to counter inflation if it did arise. Clearly they have taken drastic action in the past which is why the gold price collapsed as quickly as it rose. "

I think they may have some difficulty in doing what they did last time, ie raising interests rates to squeeze the inflation by having significant real interest rates (Fed fund rate was as high of 18% or thereabouts).

I see two problems for the FED and the govt.

Firstly with $15 trillion plus in govt debt could the US govt afford to pay its bills with high interest rates? I suppose they could fund the interest bill by printing even more debt - weird when you think about it.

Secondly, govt debt is widely held by US banks as tier one capital on their balance sheets. By raising interest rates you reduce the present market value of the govt securities thereby reducing the capital against which banks can lend - I am assuming there would not be mark to fantasy accounting used, which is always questionable in these days of ponzi financing. As their capital base were reduced they should be required to reduce their level of lending if they are following Basel rules, I think. This would have implications for the economy and bank profits.

I bet there are other issues that would be negative if interest rates were raised - including overall economic activity implications.

I have no idea if they will be able to create high officially reported inflation in the US - it has not happened in Japan over a 20 year period and they have really printed like mad. Perhaps Japan will soon come to the end of their low interest rate cycle, and conditions are a bit different in the US. The credit markets are kicking some European countries because they are not in a position to print their debt away.

I have no idea how things will turn out. There is inflation in some segments of the economy and not in others. Steve Keens website contains other ways of looking at inflation, money and debt.

loki