Fed can not let dollar fall

[ByLoSellHi]

Quote from FourZebra:

How is this huge increase in money supply not creating inflation? As a student, I am being taught that inflation has purely monetary causes, so there should be inflation, lots of it, how come there isnt? (not a rhetorical question, I honestly don't know.. so I hope someone can clarify)

It is creating inflation.

If you look at how the fed is manipulating inflation stats, it is very pathetic.

They have minimized housing and energy from the true new consumer inflation index (PCEPI), as they have shifted emphasis on to the PCEPI, rather than the broader CPI metric that was the benchmark for many, many years, in determining the real rate of inflation.

These two areas (housing/rental and energy) have, not coincidentally, seen the largest jumps (aside from medical care) in the last decade.

Their logic is flawed and their claims are cynical. They claim these changes were made due to the greater 'volatility', of certain consumer costs, which could cause short term fluctuations to unduly influence their purported long term fed reserve goal of keeping inflation in check.


http://www.findarticles.com/p/articles/mi_qa3699/is_199907/ai_n8864757

 

[FourZebra]

But surely they are clever people, and so they know that they can not keep things this way indefinitely, in fact they already knew before they started (if they started), so why did they start it? It seems inevitable that at some point, if what you say is true, that the true statistics come out and everyone at the fed has their credibility ruined. What would they trade this for?
I mean, I don't understand why, given that they are all good economists, which means they know that printing money is no solution, why are they doing it?

 

[ByLoSellHi]

Quote from FourZebra:

But surely they are clever people, and so they know that they can not keep things this way indefinitely, in fact they already knew before they started (if they started), so why did they start it? It seems inevitable that at some point, if what you say is true, that the true statistics come out and everyone at the fed has their credibility ruined. What would they trade this for?
I mean, I don't understand why, given that they are all good economists, which means they know that printing money is no solution, why are they doing it?

IMO, they are doing it because printing money is the easiest way for any government to contain budgetary crises.

If foreign treasury note holders buy U.S. government debt, get a scant 4.4% yield, and the value of the U.S. dollar falls in value on an annualized basis of 5.5% relative to their own currency over the term of that obligation, the government is getting free money at the expense of the note holders.

There's a saying; "deflate or die."

The U.S. government has a keen interest, despite their contrary claims, in seeing the dollar plunge in value.

That deflation of the currency has a nasty and pernicious habit of leading to inflation domestically.

 

[FourZebra]

Why would they risk assuring the failure of their inflation containment responsibility, for one which isn't even theirs?

 

[ByLoSellHi]

Quote from FourZebra:

Why would they risk assuring the failure of their inflation containment responsibility, for one which isn't even theirs?

Because it makes financial sense, under the right circumstances, for the U.S. government to do so.

As long as they can get away with it, that is.

I forgot to mention one thing: The Federal Reserve is technically 'independent' from any of the three branches of our government, with a specific mandate to fight inflation and to use Keynesian monetary policy to stimulate or slow economic activity.

It is not, IMO, independent. It is just another tool of the executive branch of government, acting at the bequest and for the political expediency of the president or any likely president.

 

[FourZebra]

But then if the net effect on the economy is positive, that is, if the benefits from expansion of the money supply outweight the negatives of a rise in inflation, why are people worried?

 

[TM1]

Quote from FourZebra:

But then if the net effect on the economy is positive, that is, if the benefits from expansion of the money supply outweight the negatives of a rise in inflation, why are people worried?

The worried people are the one's that realize we are living a lie and that there must come a day when when it's time to pay the piper so to speak. Others prefer to ignore the facts and wait until that day is actually here before worrying. Not a scientific explanation, but I'm trying to keep my response short, and Buylo seems to be doing a good job with the more detailed answers.

 

[jficquette]

Quote from myminitrading:

The US Federal reserve must support the dollar, the countries that have supported our record debt will not tolerate much more weakness in this currency. I suspect the fed to talk tough on inflation to support the dollar, stock market be dammed.

What you call debt is actually "savings" to the world. The world is not going to stop saving.

John

 

[FourZebra]

Also, does inflation not seriously harm domestic banks for the same reason it harms US debt holders? If they are just defending interests rather than controlling inflation, why not defend the biggest sector's interests?

 

[fusionz]

Quote from FourZebra:

But surely they are clever people, and so they know that they can not keep things this way indefinitely, in fact they already knew before they started (if they started), so why did they start it? It seems inevitable that at some point, if what you say is true, that the true statistics come out and everyone at the fed has their credibility ruined. What would they trade this for?
I mean, I don't understand why, given that they are all good economists, which means they know that printing money is no solution, why are they doing it?

most people are sheep when it comes to numbers. They blindly follow what the media reports, and actually understanding how inflation is reported is hard for most people to understand.