Who are you going to believe, the Federal Reserve or those guys on Wall Street who go broke and lose their jobs when they’re wrong too much? You have to choose, because the two have split in a way that offers no compromise. Our apologies for offering an unpleasant choice, but reality is like that.
Wall stree see, is smelling inflation. Those guys need to get it right, or they’re toast. The Fed says it’s just statistical noise, not inflation; there’s nothing to worry about, have a beer. Or for the Fed folk, we suppose a glass of wine.
A little context might be useful here. For Wall Street as we’ve said twice already, building inflation into its investments is existential. That would make me as clear-eyed as possible. For the Fed, it’s different. Should you go back and read about the Great Depression or inquire about Nobel Economist Milton Friedman, you’ll find that the Fed is blamed for that debacle, specifically for shutting down the availability of easy, cheap money. Recently ex Fed Chairman Ben Bernanke owned up to that, promising that the Fed Won’t do it again. Right.
But there’s this little problem … The Fed has been dumping easy money into the economy by the carload for years, so a lot more dollars are now available to buy the same old amount of stuff. And those dollars are now getting out of the banks and out into the economy. That is raising the dollar prices of goods; we call that inflation. So does the Fed.
But the Fed has promised to prevent too much inflation, right? However, the politicians are still running big deficits, overspending to keep the pensions, medical care and their pet wars going. They need the Fed’s printed-up money to do that; our taxes don’t cover it. So the Fed sits between bringing on a new Great Depression II by repeating the shut-off it did last time and that Mr. Bernanke promised it won’t do again, or just printing more money and watching inflation eat out the value of the U.S. dollar to worthlessness. Classic rock versus a hard place … And there the Fed sits. Sits and dithers, more like.
Wall street sees inflation and has to react. The Fed doesn’t want to see inflation because it doesn’t want to react. When ex-Chairman Bernanke handed off to new Fed Chair Janet Yellen, what he handed her was a bag; she is now holding it. And it is distressingly, empty. Whichever way she ultimately decides to go, will be explained by some future Nobel economist as dead wrong. However, her salary will be reliably paid regardless while a lot of Americans will be less fortunate …