6 Two 3 Nine

Expert Unexpert Advice

Fed: Here’s a great idea! Let’s trick people into overspending by undermining our monetary stability.

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The unemployment rate projection for October would make it the 15th month of joblessness at 9.5 percent or higher, the longest stretch since records began in 1948. The worst recession since the 1930s caused the loss of 8.4 million jobs.

The need to lift the labor market is one reason investors expect more steps from the Fed, which has already cut interest rates almost to zero and bought $1.7 trillion in securities.

“To the extent that we can do things to improve the economic environment, we certainly owe it to the millions of people who are unemployed to do so,” Fed Bank of New York President William Dudley said in response to audience questions after a speech on Oct. 25.

Silver lining: spending will inevitably increase when people start seeing their savings evaporating due to inflation.

Look, I know that the deflation that’s looming scares people.  It’s not the worst thing that can happen.  If the value of the dollar needs to increase in order to return to equilibrium, tricking people into thinking it’s worth less than it is can’t cover it up forever.  It’s done at the expense of confidence in the value of our currency.  The more investors know that the Fed’s getting silly with the price fixing, the less people will want to invest in the dollar.

So take it easy, you guys aren’t the currency Gods ordained to hand down the value of the dollar from on high.



Written by updowndownup

October 31, 2010 at 9:22 pm

Posted in Federal Reserve

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