Government

In Response to Quantitative Easing Critique, Fed Claims ‘Declining Inflation’

A group of prominent economists and political strategists are joining the cacophony of voices concerned about President Obama’s second round of “quantitative easing.” On Monday, 23 economists, former government officials, and political strategists sent an open letter to Fed Chairman Ben Bernanke telling him the stimulus-orientated policy “should be reconsidered and discontinued.“ The Fed responded by saying inflation is ”declining.”

Among the signers are former CBO director Doug Holtz-Eakin, Great Depression expert Amity Shales, and Weekly Standard editor Bill Kristol.

The letter appeared in full in Monday’s Wall Street Journal:

We believe the Federal Reserve’s large-scale asset purchase plan (so-called “quantitative easing”) should be reconsidered and discontinued.  We do not believe such a plan is necessary or advisable under current circumstances.  The planned asset purchases risk currency debasement and inflation, and we do not think they will achieve the Fed’s objective of promoting employment.

We subscribe to your statement in the Washington Post on November 4 that “the Federal Reserve cannot solve all the economy’s problems on its own.”  In this case, we think improvements in tax, spending and regulatory policies must take precedence in a national growth program, not further monetary stimulus.

We disagree with the view that inflation needs to be pushed higher, and worry that another round of asset purchases, with interest rates still near zero over a year into the recovery, will distort financial markets and greatly complicate future Fed efforts to normalize monetary policy.

The Fed’s purchase program has also met broad opposition from other central banks and we share their concerns that quantitative easing by the Fed is neither warranted nor helpful in addressing either U.S. or global economic problems.

(Need a refresher course in “quantitative easing?” Watch the following video:)

The letter was met with an immediate response from the Fed — a response included in the Journal’s story.

“The Federal Reserve has Congressionally-mandated objectives to help promote both increased employment and price stability,” a spokeswoman said. “In light of persistently weak job creation and declining inflation, the Federal Open Market Committee’s recent actions reflect those mandates.” [Emphasis added]

A recent investigation reported by CNBC shows that “declining inflation,” however, may be a figment of the Fed’s imagination.

According to a new pricing survey of products sold at Wal-Mart, prices have increased by 0.6 percent in just the last two months, says MKM Partners. CNBC concludes: “At that rate, prices would be close to four percent higher a year from now, double the Fed’s mandate.”

“A moderate amount of inflation would be considered good for the economy,” CNBC says. “The problem is that inflation is already running well above a healthy level, investors said, Bernanke is just not looking in the right place, like a Walmart.”

Instead, the article says, he’s focusing on real estate. But with the Fed keeping interest rates arbitrarily low, that may not be a good indicator.

“I suspect that when the Chairman thinks about reflation he has a difficult time seeing any other asset besides real estate,” said Jim Iuorio of TJM Institutional Services to CNBC. “Somehow the Fed thinks that if its not ‘wage driven’ inflation that it is somehow unimportant. It’s not unimportant to people who see everything they own (homes) going down in value and everything they need (food and energy) going up in price.”

What exactly is “going up in price?”

“Prices of cotton, silver wheat, soybeans, corn are all up big this year,” the article says. “Cotton futures are up the most, climbing 90 percent so far in 2010. The price of silver is up 63 percent.”

Comments (82)

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  • powhatan
    Posted on November 15, 2010 at 10:32am

    UP is the new DOWN?

    Report Post » powhatan  
    • GhostOfJefferson
      Posted on November 15, 2010 at 3:16pm

      That’s the high and low of it. Or, um, rather…the low and high of it.

      I had no idea, literally no idea, that when gasoline shot up +20 from two weeks ago and vegetable prices increased somewhere around 6% in the same time, that I was experiencing deflation.

      Now if you’ll excuse me I have to go blow up…er um deflate…some balloons for an upcoming birthday party.

      Report Post » GhostOfJefferson  
  • Ruler4You
    Posted on November 15, 2010 at 10:30am

    LOL! LMAO! What a load of crap! Government has been lying about inflation for over 20 years! revising estimates weeks and even months after making claims of ‘low’ or ‘no’ inflation, sometimes more than doubling their previous claims.

    Now with them doing everything in the world actually KNOWN to cause MAJOR inflation, it’s “declining.” Yea, I’m buying that. Couple that with an administration that hasn’t uttered a 100% truthful statement in two years that didn‘t have a list of relativism’s or caveats or other ‘exceptions’ or ‘opinions’ and credibility doesn‘t ’suffer’, it doesn’t exist at all.

    More than tripling the supply of money M3 in the last year plus is the surest way to major inflation, and they have done that and more. Attaching economic uncertainty at home is an inflation stimulator, but when you add in the rest of the world, go ahead and count on it. Unchecked and uncontrolled government larges? Inflation stimulus. Energy increase? Inflation BOOM! This is the short list.

    Report Post » Ruler4You  
  • IM A *******
    Posted on November 15, 2010 at 10:28am

    Its more like Optical Rectitus to me.

    Report Post » IMA_LIBTARD  
  • Novamax75
    Posted on November 15, 2010 at 10:15am

    INFLATION IS EVERYWHERE… When I used to go to the junkyard it was a buck to get in and parts were CHEAP CHEAP CHEAP…. now it’s 3 bucks to get in a year later and parts are almost double in price! Try living IN OUR WORLD MR BERNANKE. Sorry just another example of the (according to the fed) DEFLATION?

    Report Post »  
  • Hugh Williams
    Posted on November 15, 2010 at 10:09am

    How can the Fed think the American people will believe this load of horse hockey? Last week gas at the station near my house went up 8 cents a gallon in one day.

    Report Post » Hugh Williams  
  • shorthanded12
    Posted on November 15, 2010 at 10:03am

    I hope Ron Paul and Darrell Issa have a clock counting down to Jan 2011. Pauls been screaming for years about the Federal Reserve. Can we say ‘SHADOW GOVERNMENT” Remember what Obama said when he appointed Tax Cheat Geithner despite Timmys tax issues. “HES THE RIGHT MAN FOR THE JOB’ in other words another well program insider. Greenspan, Paulson, Bernanke should all be infront of a congressional hearing explaining the inner workings of the Federal Reserve. PERIOD!!!!!!!!

    Report Post »  
  • Sandy
    Posted on November 15, 2010 at 9:58am

    If so, then allow an AUDIT to prove it!!!!!!

    Report Post » Sandy  
  • Ronko
    Posted on November 15, 2010 at 9:51am

    The Feds say that Inflation is declining yeah the odds of that being true is the same odds that Joe Biden stops making political gaffes.

    Report Post »  
    • drbage
      Posted on November 15, 2010 at 10:09am

      Obviously they have not gone to a store or a gas station in the past six months. What they are not telling us is that they changed the formula by which they calculate inflation. Under the old formula inflation in the real US is running at about 8 percent. A friend of mine who is on SSI just got the govt form letter saying that there would be no COLA in 2011 and as of the writing of the letter, none in 2012. The same day Food Stamps sent out a letter reducing the allocation due to “declining food prices.” Where is this supposedly happening?

      Report Post »  
    • CatB
      Posted on November 15, 2010 at 2:32pm

      @DRBAGE

      Not at my grocery store. … that is why more and more people are turning to food banks … they can change the formula all they want but people know what is going on each time they go to get groceries or gas or most any commodity.

      Report Post »  
  • ron342
    Posted on November 15, 2010 at 9:46am

    Evidently the Fed is on a diet of cash and they no longer go grocery shopping.

    Report Post » ron342  
  • MikeinIdaho
    Posted on November 15, 2010 at 9:45am

    Yah, inflation is declining and Santa claus is coming!
    Hey Ben, try goping shopping on your own once, then tell us about the lack of inflation, you moron.
    Support Congressman Ron Paul in taking down the Fed!

    Report Post » MikeinIdaho  
  • wrburton
    Posted on November 15, 2010 at 9:41am

    Thanks for the video!… Very funny AND helpful!

    Report Post »  
  • countryboy42
    Posted on November 15, 2010 at 9:40am

    I have to call Bulls#@t on this one. I would love to see these people live off of what the average American makes. If they had to live off of $50k per year, i bet they would get their s#@t together really quickly. With the price of food and fuel going up, people who are barely hanging on now, are in deep trouble. Look for more foreclosers as people have to use that money to feed themselves, and their family.
    This is going to get worse before it gets better.
    Keep your powder dry, and God bless.

    Report Post »  
  • Food4Thought
    Posted on November 15, 2010 at 9:37am

    I work for a wholesale food dist. co. Our sales were up last quarter but 3.3% of that growth was inflation. Pork and beef are near all time highs because of the price of feed. Inflation is here NOW!

    Report Post »  
  • nojoke
    Posted on November 15, 2010 at 9:36am

    The puppies know.

    Report Post »  
  • bookofwisdom
    Posted on November 15, 2010 at 9:35am

    My thanks to who ever made the video. Finally I can understand what is happening and who is responsible. Makes me want to bang my head against the wall too, only I cannot afford another doctor’s visit. May God Bless.

    Report Post » bookofwisdom  
  • Sinista Mace
    Posted on November 15, 2010 at 9:34am

    What is declining inflation?

    Deflation.

    The collapse of the dollar bubble.

    Report Post » V-MAN MACE  
  • Sinista Mace
    Posted on November 15, 2010 at 9:33am

    I think some tea partiers fail to realize that Sarah Palin is a progressive plant who campaigned with progressive John Mccain, and that she is deliberately put forth to co-opt the tea party in the interest of establishment republicans.

    Reject Palin, it’s ok to like her personality, I thought I liked Obama’s personality until it became apparent that he is an arrogant condescending jerk.

    Palin is no good for the Tea Party.

    We need to utterly reject anybody having even remotely the slightest connection with progressives.

    Sarah Palin needs to explain why she campaigned for progressive John Mccain AFTER she was put through the ringer with those establishment republicans.

    V-MAN MACE  
  • Hefsmaster
    Posted on November 15, 2010 at 9:32am

    The last chapter in the book of economic ruin.

    Report Post » Hefsmaster  
  • OneRepublic4us
    Posted on November 15, 2010 at 9:31am

    I guess there’s no law against lying to congress, otherwise Club Fed would have a “No Vacancy” sign.

    Report Post » OneRepublic4us  
  • heavyduty
    Posted on November 15, 2010 at 9:30am

    Sure sounds like the crap is hitting the fan now. I can’t believe that we have been asleep at the wheel for so long. I didn’t like Bush all that much, but he was better than Gore. But this Bernake guy is going to have to go. We need to get someone in there that has some inkling as to what to do. Doesn’t sound like he does. So he needs to be fired in a hurry. Bernake here’s your sign.

    Report Post »  
  • Stu Pedaso
    Posted on November 15, 2010 at 9:28am

    I sure wish I could buy up my own debt with MONOPOLY MONEY. Serious case of cranial rectosis!
    End the Fed!!!! Some one for god sake END the FED!!!!!!

    Report Post » Stu Pedaso  
  • Marylou7
    Posted on November 15, 2010 at 9:26am

    Since when does the Fed or Obama listen to anyone? All they care about is making our dollar worthless and their One World Order.

    Report Post » Marylou7  
  • what4
    Posted on November 15, 2010 at 9:22am

    This country cannot afford these idiots any longer, two years is to long! Put your boots on and get to work getting all these progressives out of their positions. Recall Mania!

    Report Post »  
    • untameable-kate
      Posted on November 15, 2010 at 11:31am

      Not enough people paying attention to get them out. There are alot of people in this country who are in love with that idiot Obama, and those people have no Idea what is happening. Until those morons start paying attention we’re doomed to suffer these fools. The blacks love him because he’s black, the young people love him because he is young (and black), and the dems love him because he ran as a dem (and he’s black). I think if he were an old white guy he would already be out on his @$$.

      Report Post » Untameable-kate  
  • heavyduty
    Posted on November 15, 2010 at 9:21am

    We should hold him accountable to what he said when he said that the government wouldn’t monetize the debt. Which is exactly what they have been doing. All they are doing is making things worse and either quit or get out of office. Because it is clear that they have no idea of what to do.

    Report Post »  
    • drbage
      Posted on November 15, 2010 at 10:04am

      @HeavyDuty. They think that we the people misunderstood or misinterpreted what Bernanke meant when, in sworn testimony before Congress, he said, “No, we will not be monetizing the debt.” Maybe we should get Bernanke up on the Hill again, play the tape, and see him squirm out of that one. They could have a double date with Roger Clemens and really put the duplicity of Congress and Waxy Waxman on display.
      Hopefully enough people will awake between now and 2012 so that we can elect Americans to the Presidency and Congress. Act one, repeal healthcare. Act two, repeal the financial “reform” law. Act three, open the books at the Fed and expose them to sunlight.

      Report Post »  
    • tobywil2
      Posted on November 15, 2010 at 10:24am

      Would you have our president fail to reward his political cronies? http://commonsense21c.com/

      Report Post » tobywil2  
  • HouseNegro
    Posted on November 15, 2010 at 9:18am

    Again another Clueless Monkey humping a football………….

    Report Post » SpankDaMonkey  
    • Sinista Mace
      Posted on November 15, 2010 at 9:28am

      hahaha wtf.

      Report Post » V-MAN MACE  
    • Polwatcher
      Posted on November 15, 2010 at 9:35am

      The Fed has gone totally political. You can’t believe anything they are saying. This is a hell of a fix we are in with a Fed we can’t believe.

      Report Post »  
    • snowleopard3200 {mix art}
      Posted on November 15, 2010 at 9:49am

      Crack the egg of the Federal Reserve and get ALL of it’s details into the light; and tell the ever loving truth for once. This group is in league with Soros and his allies; who only wish to bring america to her end – once and for all. I have been seeing the price creep already at work at the local stores, going up an average of 5-10 cents every week. At this rate, money, like they want it to, will be worthless within a matter of months.

      Report Post » Snowleopard {gallery of cat folks}  
    • Promotefreedom
      Posted on November 15, 2010 at 10:06am

      Bernanke knows EXACTLY what he is doing. It is all smoke and mirrors. His objective is to push the world economy towards the abyss, so the elite NWO folks can seize the right moment and pull the plug. Let’s face it, if the US recovers, it would take them too long to set this all up again.

      Report Post »  
    • tobywil2
      Posted on November 15, 2010 at 10:19am

      INFLATION – STEALTH TAXATION

      The tyrants (Wannabe Peers) would have you believe that taxes are only increased when the legislature increases taxes. These tyrants use the confusion over the relationship between wealth and the medium of exchange (money) to perpetuate this myth. Actually, the tax on the economy rises whenever the government s increases spending. Tax laws just determine how the liability is distributed. If the taxes fail to cover expenses, the value of the dollar decreases and anyone who owns money pays the tax in the form of loss of purchasing power. Money, (paper money) has no intrinsic value. The dollar’s value is determined by the quantity of wealth the market is willing to exchange for the dollar. The dollar’s value eventually will be determined by the nation’s wealth divided by the dollars and credit in circulation.

      Inflation is not a recent phenomenon. During the 19th Century the inflation rate in the United States was 12% for the entire Century. In 1800, $0.89 had the purchasing power of $1.00 in 1900, a change of about 12% in 100 years. From 1900 to 2007 the inflation rate was about 25 to 1, a change of 2500% in 107 years. A Google search lists over 20 pages of “inflation calculators” three of the most popular inflation calculators list the inflation rate of between 24.6 and27.71 from 1900 and 2007. In other words, $1.00 in 1900 was worth around $25.00 in 2007.

      What happened? In the late 1800’s and early 1900’s four factors emerged that caused inflation to increase. These are:
      • Creation of the “Fourth Branch of Government” the Bureaucracy
      • Enacting and enforcing the Sherman Antitrust Act.
      • Creation of the Federal Reserve
      • Enacting the income tax
      • Wars

      How did these factors cause such erosion in the value of the dollar? Chapter 9 of “21st Century Common Sense” explains in simple terms how these factors produced inflation of the dollar and aided the “Wannabe Peers” in usurping our freedom. The book “Money Mischief” by Milton Friedman provides a complete history of inflation, the causes and the consequences for those who require more proof. http://commonsense21c.com/

      Report Post » tobywil2  
    • tobywil2
      Posted on November 15, 2010 at 10:21am

      Another example of the “preponderance of propaganda”! The wannabe tyrants and their cronies are publicizing lies, half-truths and the irrelevant to avoid a discussion of the issues. Pay no attention to the smokescreen.

      When the premise is false the only arguments that can be used are fear mongering, emotion, sarcasm, ridicule, attacking the messenger and misrepresentation of the facts (lying). Those who expect to reap huge profits from our misery caused tyranny are experts at these tactics.

      The only relevant issue is freedom or tyranny!!!!

      http://commonsense21c.com/

      Report Post » tobywil2  
    • independentvoteril
      Posted on November 15, 2010 at 11:24am

      the fed has ALWAYS been political just now the people are starting to understand this more and more..

      Report Post » independentvoteril  
    • CatB
      Posted on November 15, 2010 at 11:40am

      Bernake isn’t listening to the experts….? I would love to hear the conversations with SOROS — I bet they are ongoing.

      Report Post »  
    • Polwatcher
      Posted on November 15, 2010 at 3:55pm

      @Independent
      You are right. Politics has always ruled the Fed. The problem is that Dem politicics now has taken a turn toward self destruction and they are using the Fed to get their way..

      Report Post »  
    • HKS
      Posted on November 15, 2010 at 4:54pm

      Obviously they don’t buy groceries, or gas or pay taxes etc. etc. etc.

      Report Post » HKS  
    • Pericles
      Posted on November 17, 2010 at 8:51pm

      Other than a bunch of talking points please, please show me the empirical data to prove that we are going to see substantial inflation. There is not one shred of evidence. Everything mentioned above and in these postings is just opinions not fact. The actual numbers show that pricing remains to be relatively flat and a lot of items have decreased in price (http://www.bls.gov/cpi/cpid1010.pdf). The near term problem is continued disinflation. Since inflation was at its lowest rate it is natural to assume that prices will eventually increase (http://economix.blogs.nytimes.com/2010/11/17/a-record-low-for-inflation/). Stop being a bunch of puppets and educate yourselves and not regurgitate worn out talking points.

      You want to see a cool graph go to http://inflationdata.com/inflation/images/charts/Annual_Inflation/annual_inflation_chart.htm

      Report Post »  
    • dracothedragon
      Posted on November 17, 2010 at 8:55pm

      “I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.” – Thomas Jefferson

      One would think that Jefferson just said this the other day.

      Report Post »  
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