You may be wondering why gold topped $1340 today. Among other reasons is the fact that the Fed seems determined to devalue the dollar even more through "qualitative easing" - a neat way of saying printing more money.
The U.S. Federal Reserve should do "much more" monetary easing to spur a sluggish economic recovery, a top Fed official said in an interview published Tuesday.
How much more?
He said the Fed should consider ways to push inflation higher in order to bring down the real cost of credit.
The Fed might aim to overshoot its informal 2 percent inflation target for a time to make up for lost ground, he said, according to the Journal. Dudley has also suggested the Fed consider this tool, known as price-level targeting.
As I have pointed out before, central banks have a horrible track record of getting inflation under control once it is out of the bag. Further, long term budget projections reveal that our current economy is not the problem - it is the economy once the Baby Boomers retire. We already see the trend. The Fed had said that the qualitative easing implemented last year was temporary, it now appears in place for the foreseeable future and more is on the way. What happens when this second round of easing does not solve the problem even with their now desired 3% inflation that "unexpectedly" rises to 4%. Do we really expect these same people to admit to their mistake at that point, or will they continue to demand that unemployment is still too high and they just have to do more?
This is how we got into the stagflation of the 1970's, but the fundamentals this time are much worse. Prepare for a bumpy ride.