Federal Reserve Statement – “Inflation Forever.”

Recently, the Federal Reserve declared their intent to continue expanding the monetary base by $900 billion per year. This is a reduction of 12% from the previous $1 trillion per year. Despite this tiny, mostly insignificant taper, the Federal Reserve has also vocalized their intent to continue monetary inflation for the foreseeable future. As declared in a recently released statement:

To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens.

A highly accommodative monetary policy will continue for a considerable time after the asset purchase program ends”: That doesn’t make sense to me. The Federal Reserve’s entire monetary policy is based on asset purchases. How are they going to provide an “accommodative monetary policy” when they stop buying assets? It’s stupid. This is typical Federal Reserve babble in which they throw out vaguely official-sounding terms and declarations to give everybody the impression that the esteemed economic scientists are at the helm when in reality, they’re totally clueless and have no idea what to do.

If this statement has any meaning at all, it can only mean that the Fed is going to stop subsidizing mortgages and treasury bonds in favor of short-term treasury bills. Otherwise, I don’t see how their statement can mean much of anything. All it means is that the Fed has declared its intent to expand the money supply indefinitely, which is of course exactly what politicians and the major banks on Wall Street want them to do.

The only conditions for a real tapering of expansion that the Fed has ever vocalized are unemployment falling to 6.5% and CPI inflation reaching 2% per annum. Neither of these is the case now. They’ve also hinted at the existence of other conditions that would prompt a taper, which of course have never been identified publicly.

As the statement goes on to say:

In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments.

Translation: “We’ll continue to expand until it looks painful.” There’s nothing special or scientific about what they’re doing, although they try to make it sound that way.

Look at this chart, provided by the Federal Reserve Bank of St. Louis. This tracks the monetary base as determined by the Fed over the years.

http://research.stlouisfed.org/fred2/data/BASE_Max_630_378.png

Look at that tiny blip near 2000. That was a burst of expansion generated by Alan Greenspan to supposedly quell monetary fears related to Y2K and the bursting Dot-com bubble. At the time, that was controversial. Now zoom ahead to the full picture; look at the expansion from 2008 onward. Now you see what the Federal Reserve has been up to this whole time. When you look at the huge increases, you can see that they’ve largely been stop-and-go. The monetary base has been expanded in spurts. This recent declaration has sent a clear message: no more spurts. From now on, expansion is going to be relentless and continuous.

Consumer prices rose approximately 1.2% from the end of the 2012 to the end of 2013. The Federal Reserve insists they need 2% per annum to halt expansion. They’ve slowed down slightly in response to the 1.2% price inflation rate, but unless they hit that magic 2% number, they plan on continuing. Ben Bernanke has made it clear on multiple occasions that no tapering will be undertaken until they hit price inflation of 2% per annum. What that means, in conjunction with this latest statement, is that they don’t plan on making anything other than token reductions to the rate of expansion. There ain’t gonna be no halt anytime soon, and Bernanke wants investors to know this. The new Fed chairwoman, Janet Yellen, is Bernanke on crack. She will be even more enthusiastic about inflation and monetary expansion.

What was meant in 2008 as an emergency monetary action has now become business-as-usual. If you had told an economist in the year 2000 that monetary expansion in the year 2014 would be $900 billion, they probably would’ve called you crazy. Now, at the outset of 2014, we have some economists saying that it isn’t ENOUGH monetary expansion. What was once considered inconceivable is now the norm, and the US economy is now addicted to an emergency measure from 2008 that has transitioned into business-as-usual.

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