‘No Undue Fallout’ from Money Printing
San Francisco Fed Chief Sees no Danger
John Williams, president of the San Francisco Fed, yet another noted dove, thinks nothing can go wrong by printing gobs of money. There is no inflation, and there never will be. They have the 'tools' to avert it. Never mind the explosion of the money supply over the past four years – it is all good.
The nuclear bomb aftermath imagery Reuters used in its headline is actually quite apt.
“The U.S. Federal Reserve's unconventional monetary policies have lowered borrowing costs and boosted growth without creating unwanted inflation, a top Fed official said on Monday, predicting the Fed's latest round of asset-buying will exceed $600 billion.
The Fed will want to see sustained jobs gains and a consistent drop in the unemployment rate before it stops buying assets, making it likely the purchases will continue until "well into next year," John Williams, president of the San Francisco Federal Reserve Bank, told reporters after a lecture at the University of California, Irvine.
The U.S. central bank's prior round of quantitative easing totaled $600 billion; its first one was about $1.7 trillion.
The Fed began its third round of quantitative easing, known as QE3, in September, beginning with $40 billion a month in mortgage-backed securities and promising to continue or expand the purchases if the labor market does not improve substantially.
Although asset-buying and other non-traditional monetary policies pose potential risks, "the available evidence suggests they have been effective in stimulating growth without creating an undesirable rise in inflation," Williams said at the lecture. "We are not seeing signs of rising inflation on the horizon."
The policies also have not stimulated excessive risk-taking, he said.”
They have not stimulated what? This is a joke, right?
We are struck by the continued refusal by Fed officials to even think for a second about the long range effects of their policies. They see nothing untoward on the 'horizon' because their horizon probably ends at the edge of their dinner plates. One feels fatally reminded of the many premature victory laps, the self-congratulory back-patting and the growing incidence of laughter at FOMC meetings during 2004-2006.
At the time it was also held that the 'great effort' by the monetary bureaucrats to help pump up the money supply by cutting rates to the bone after the Nasdaq bubble had expired had been responsible for producing a sound recovery. In reality it had only produced yet another bubble, this time one so egregious it almost proved fatal for the banking system, which to this day survives mainly by dint of clinging to well over a trillion dollars in excess reserves the Fed has created from thin air.
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