Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
S&P 500 – Is a 5% Correction Enough? - 6th Dec 21
Global Stock Markets It’s Do-Or-Die Time - 6th Dec 21
Hawks Triumph, Doves Lose, Gold Bulls Cry! - 6th Dec 21
How Stock Investors Can Cash in on President Biden’s new Climate Plan - 6th Dec 21
The Lithium Tech That Could Send The EV Boom Into Overdrive - 6th Dec 21
How Stagflation Effects Stocks - 5th Dec 21
Bitcoin FLASH CRASH! Cryptos Blood Bath as Exchanges Run Stops, An Early Christmas Present for Some? - 5th Dec 21
TESCO Pre Omicron Panic Christmas Decorations Festive Shop 2021 - 5th Dec 21
Dow Stock Market Trend Forecast Into Mid 2022 - 4th Dec 21
INVESTING LESSON - Give your Portfolio Some Breathing Space - 4th Dec 21
Don’t Get Yourself Into a Bull Trap With Gold - 4th Dec 21
GOLD HAS LOTS OF POTENTIAL DOWNSIDE - 4th Dec 21
4 Tips To Help You Take Better Care Of Your Personal Finances- 4th Dec 21
What Is A Golden Cross Pattern In Trading? - 4th Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - Part 2 - 3rd Dec 21
Stock Market Major Turning Point Taking Place - 3rd Dec 21
The Masters of the Universe and Gold - 3rd Dec 21
This simple Stock Market mindset shift could help you make millions - 3rd Dec 21
Will the Glasgow Summit (COP26) Affect Energy Prices? - 3rd Dec 21
Peloton 35% CRASH a Lesson of What Happens When One Over Pays for a Loss Making Growth Stock - 1st Dec 21
Stock Market Sentiment Speaks: I Fear For Retirees For The Next 20 Years - 1st Dec 21 t
Will the Anointed Finanical Experts Get It Wrong Again? - 1st Dec 21
Main Differences Between the UK and Canadian Gaming Markets - 1st Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - 30th Nov 21
Omicron Covid Wave 4 Impact on Financial Markets - 30th Nov 21
Can You Hear It? That’s the Crowd Booing Gold’s Downturn - 30th Nov 21
Economic and Market Impacts of Omicron Strain Covid 4th Wave - 30th Nov 21
Stock Market Historical Trends Suggest A Strengthening Bullish Trend In December - 30th Nov 21
Crypto Market Analysis: What Trading Will Look Like in 2022 for Novice and Veteran Traders? - 30th Nov 21
Best Stocks for Investing to Profit form the Metaverse and Get Rich - 29th Nov 21
Should You Invest In Real Estate In 2021? - 29th Nov 21
Silver Long-term Trend Analysis - 28th Nov 21
Silver Mining Stocks Fundamentals - 28th Nov 21
Crude Oil Didn’t Like Thanksgiving Turkey This Year - 28th Nov 21
Sheffield First Snow Winter 2021 - Snowballs and Snowmen Fun - 28th Nov 21
Stock Market Investing LESSON - Buying Value - 27th Nov 21
Corsair MP600 NVME M.2 SSD 66% Performance Loss After 6 Months of Use - Benchmark Tests - 27th Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Fed Economic Stimulus Leads to Stagflation

Economics / Stagflation Jun 03, 2011 - 02:44 PM GMT

By: John_Browne

Economics

Despite the full onslaught of Keynesian economic policies, including the injection of unheard of sums of printed money into the financial system, state sanctioned accounting tricks, negative real interest rates, massive deficit spending, and debasement of the U.S. dollar, the American economy is slipping back fast towards recession. This week's release of dismal employment figures, in which the entire economy could only muster 54,000 new jobs, confirms that fact.


It is certainly reasonable to assume that more jobs would have been lost in 2008 and 2009 if the government had not steeped in as aggressively as they had with this Keynesian barrage. But if we had chosen the less interventionist path our present reality may have been quite different. We had the opportunity then to lay the ground work for a real recovery. This was a theme that I continually stressed at the time. Instead, our leaders chose the time worn strategy of inflation as an economic cure all. It hasn't worked, and our economy is far worse now as a result.

But the price for these massive injections of cash and the debasement of the currency will be continued economic malaise. There is a word for the ugly combination of recession and inflation: stagflation-the worst of all worlds and the most difficult to cure. I suspect that we will hear this word mentioned much more often as the decade wears on.

The Fed has pumped trillions of synthetic dollars into the economy through purchases of toxic assets from the balance sheets of failing banks. These moves have permitted banks to camouflage other suspect assets under accounting gimmicks, thereby perpetuating a zombie financial system. Not only have most of the struggling banks survived, they are thriving. By dropping short-term interest rates to below the level of inflation, and by receiving interest on the deposits made at the Fed, the banking sector has been extremely profitable over the last few years, especially for those institutions lucky enough to have been designated as "too big to fail." It is not surprising that Wall Street bonuses continue to flow generously. But these developments hardly benefit the world beyond Wall Street.

By robbing depositors of an economic return on bank deposits, the Fed sought to force consumer demand. However, aware of their massive exposure to derivatives, many related to real estate, the banks remain tight on consumer lending. Further, the Administration has appeared unfriendly to business and has caused great uncertainty over future taxes, regulations and health expenditures. As a result, consumer confidence has plummeted, and rightly so.

As the price of real estate continues to fall, it draws into question the backing of real estate related derivatives, threatening the banks, making credit even tighter, and driving recession even deeper amid rising unemployment. All the while U.S. Government spending still veers out of control. To finance the largesse, Treasury debt has exploded and the Fed has printed money as never before. As a result, the U.S. dollar is approaching all time lows against the many major currencies. If it were not for deep concerns over the continued existence of the Euro, the U.S. currency would have fallen far further.

Some short-sighted economists have lauded the fall of the dollar by arguing that a weak greenback will help U.S. exports. While it's true that initial stages of currency devaluation can have such an effect, over time a falling currency proves to be both highly damaging to domestic businesses and inflationary for the overall economy. Evidence increasingly shows that American businesses and consumers are facing higher import costs. In other words, do not look for a cheap dollar to provide any meaningful boost.

Clearly the government's economic prescriptions have failed. That does not mean, however, that their policies will be abandoned. On the contrary, look for policy makers to up the dosage. But when the Fed introduces a third QE program, look for inflation to break free from the narrow ranges that have predominated over the last few years. When that happens, the next phase of the economic cycle will set in. Stagflation will be the order of the day.

Subscribe to Euro Pacific's Weekly Digest: Receive all commentaries by Peter Schiff, Michael Pento, and John Browne delivered to your inbox every Monday.

By John Browne
Euro Pacific Capital
http://www.europac.net/

More importantly make sure to protect your wealth and preserve your purchasing power before it's too late. Discover the best way to buy gold at www.goldyoucanfold.com , download my free research report on the powerful case for investing in foreign equities available at www.researchreportone.com , and subscribe to my free, on-line investment newsletter at http://www.europac.net/newsletter/newsletter.asp

John Browne is the Senior Market Strategist for Euro Pacific Capital, Inc.  Mr. Brown is a distinguished former member of Britain's Parliament who served on the Treasury Select Committee, as Chairman of the Conservative Small Business Committee, and as a close associate of then-Prime Minister Margaret Thatcher. Among his many notable assignments, John served as a principal advisor to Mrs. Thatcher's government on issues related to the Soviet Union, and was the first to convince Thatcher of the growing stature of then Agriculture Minister Mikhail Gorbachev. As a partial result of Brown's advocacy, Thatcher famously pronounced that Gorbachev was a man the West "could do business with."  A graduate of the Royal Military Academy Sandhurst, Britain's version of West Point and retired British army major, John served as a pilot, parachutist, and communications specialist in the elite Grenadiers of the Royal Guard.

John_Browne Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in