(IBD) Federal Reserve Fed Could Boost Bond Buys As Economic Growth Sputters

The economy lurched this spring into an even lower gear, from manufacturing to services to construction, leaving the Federal Reserve poised to prolong or expand its bond-buying stimulus.

Central bankers Wednesday kept benchmark rates near zero and quantitative easing purchases at $85 billion a month. But changes in their statement highlighted shifting emphasis.

“The Committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes,” it said.

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Posted in * Economics, Politics, * International News & Commentary, America/U.S.A., Consumer/consumer spending, Corporations/Corporate Life, Economy, Federal Reserve, Housing/Real Estate Market, Labor/Labor Unions/Labor Market, The U.S. Government

8 comments on “(IBD) Federal Reserve Fed Could Boost Bond Buys As Economic Growth Sputters

  1. Militaris Artifex says:

    Oh, wonderful! Yet more “stimulus.” Ladies and gentlemen, you all need to study a wee bit of German. Just enough so that you can correctly pronounce the German word “Weimar.”(*) Also, it probably wouldn’t hurt to study at least enough economics so as to be able to pronounce and define the term “hyperinflation.” It certainly appears that Uncle Ben (Bernanke, not the purveyor of parboiled rice) is bound and determined to get inflation up to the level at which he thinks it belongs.

    Pax et bonum,
    Keith Töpfer
    (*)Hint: The leading “w” in a German word is almost always pronounced as the English-speakers pronounce a leading letter “v.”

  2. Ad Orientem says:

    Inflation is a very real risk when you are printing money at rate that exceeds economic capacity to absorb the increased money supply. Hyperinflation is not. Broad based inflation is usually a monetary phenomenon. Hyperinflation however is a political one. It is a symptom of a failed state.

    I know of no instance of hyperinflation that was not triggered in whole or part by..
    * Sovereign debt denominated in a currency not under government control.
    * Collapse of the means of production.
    * Political instability i.e. insurrection, civil war, violent regime change etc.
    * Loss of a major war.
    * Broad based governmental incompetence and corruption to the extent it is unable to provide the most essential services often characterized by a substantial breakdown in the rule of law.

    None of those conditions are even remotely close to coming into existence (paranoid political fantasies not withstanding).

  3. Militaris Artifex says:

    Ad Orientem,

    Are you suggesting that it is inconceivable that the U.S. could experience hyperinflation were the country to repudiate its debt?

    Keith Töpfer

  4. Ad Orientem says:

    I reject the premise of the question. Why would the country repudiate its debt?

  5. Militaris Artifex says:

    That is what debtors do when they collide with the reality that they cannot, absent divine intervention, generate enough wealth to repay their debt, and are faced with a situation in which no other country will purchase any additional debt instruments from them in order to allow them to inflate that debt away.

    You seem to have concluded that such an outcome is beyond the realm of possibility. If and when the rénmínbì (or any other nation’s currency, or even no nation’s currency, for that matter, but rather a network of international currency agreements establishing mutually agreed settlement currencies) replaces the US dollar as the world’s reserve currency, that will be one potential outcome. I think it not beyond the realm of possibility that the Chinese might succeed in eliminating the USD as the world’s reserve currency. Heaven knows they would be happy to do so.

    Keith Toepfer

  6. Ad Orientem says:

    I have indeed concluded that there is almost no possibility of default. The US debt is denominated in the US Dollar. We control our currency and own a very effective printing press. No nation in such a position can possibly default unless it chooses to.

    I am not excluding the possibility of a nasty spike in inflation. But sovereign debt default? Hyperinflation? Weimar Germany?


    When we have lost a world war, had the modern equivalent of a hundred trillion in debt imposed on us payable only in gold, and have riots in the streets following the overthrow of our government I will be worrying about a currency crisis and sovereign default.

    I think you have been reading too much doomer porn. You need to seriously avoid the economic crack pots like Zero Hedge and Peter Schiff who have gotten drunk on the Austrian Kool Aid.

    A modest inflation of around 5% for ten years or so would cut our debt to GDP ratio in half. Sadly even that seems unlikely given that we are in a classic post debt/credit bubble near deflationary depression.People who have money are using it to pay off debt so it effectively is not entering circulation.

    Only extremely aggressive QE has prevented a total 1930’s type deflationary economic heart attack. These things can take a long time work off. Look at Japan for the last 20+ years.

  7. Militaris Artifex says:

    I can only conclude that I have less respect for the intellectual accomplishments of Krugman, Bernanke and Keynes than you have for Mises and Hayek—although I know who Peter Schiff is, I don’t listen to him—and anyone who refers to Austrian school economic theory as Kool-Aid is engaging in name-calling rather than reasoned argumentation. Keynes reliance on aggregates and the theory of “idle resources” is without either substance or explanatory power, let alone results.

    I suppose that we will simply have to agree to disagree, until the future arrives. As to [i]deflation[/i], the CPI (even the “moderately cooked” version published by the U.S. government) fails to support such a characterization of our present situation.

    [i]Pax et bonum[/i],
    Keith Töpfer

  8. Ad Orientem says:

    I concur we will have to agree to disagree. I am not a big fan of Krugman myself, nor am I a Keynesian. Once upon a time I leaned heavily Austrian but research punched way too many holes in that. Currently I am not ideological, but I lean towards [url=http://en.wikipedia.org/wiki/Modern_Monetary_Theory]MMT[/url] and [url=http://pragcap.com/understanding-modern-monetary-system]MR[/url] for my approaches to economics.

    But if you can identify any sovereign default in the post gold standard world where the national debt was denominated in their own currency and absent a catastrophic political event I would be interested in hearing about it.

    As for the absence of actual deflation, as I noted that is due solely to the massive QE undertaken by the FED. In any normal economic environment the sort of increase in M1 that we have seen over the last 4+ years should have sparked a rather a nasty inflation. But inflation remains at near record lows. This is due to the newly “printed” money being held in reserve by undercapitalized banks and or used to pay down debt.

    In effect the money disappears as soon as it rolls off the electronic printing press. And of course we have to remember that we are only just beginning to recover to pre 2008 levels of available capital given the enormous amount of wealth that was wiped out by the real estate and stock market crashes.

    The average homeowner alone lost more than a third of their net worth. And that doesn’t take into consideration the losses inflicted on 401Ks, IRA’s and other investments.

    Until economic productivity rises dramatically and unemployment drops below 6% I think even a modest spike in inflation is something we can only hope for.