| Gynn fires warning about inflation, threatening more hikes |
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Jon
Preferred Member
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Joined: 13 Apr 2005
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| Gynn fires warning about inflation, threatening more hikes |
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Gynn ominously warned a nervous Georgia crowd that core inflation may have already breached the Fed’s upper limit on the range of inflation growth. The Fed may have to ‘reset’ policy if indeed the outlook had worsened. That is why Gynn sees the inflation risk as ‘elevated.’ Let’s see, is that yellow or orange? I always get those confused. In any event, I had better go tape up my windows with plastic sheeting, get some bottled water and ‘D’ cell batteries, and get the kids back inside.
Gynn unwittingly summed up what is wrong with our Federal Reserve and what has been wrong with it since inception. He stated the “consequences of a negative surprise on inflation are greater than the negative surprise on output.”
Of course, that statement went unchallenged and indeed we even heard some pundits parroting it later on the financial stations. Let’s take a look. Let’s use the most recent example, say 1999 and 2000. The Fed was absolutely certain that inflation was just around the corner and it said it so often that it became common parlance. We had to fight inflation because it was so close, and heaven forbid we see a wisp of inflation smoke on the horizon. So the Fed jacked up rates and drained money supply, adding that final 50 BP kick to the economy’s privates in May 2000. They certainly avoided inflation. They tanked the market then the economy, and both tanked hard. Millions of jobs lost in the span of less than 2 years, many of which are now overseas. Trillions in retirement accounts lost. Those jobs and that money has not been recovered, yet the Fed is tilting at inflation again even as the economy starts to fade.
Now you tell me: would you have preferred even a hint of inflation to that cataclysmic meltdown in the stock market and the economy? And it was cataclysmic. Some will say it was a shallow recession. Well, if you were coming down from 3% growth, -1% if fairly shallow. When you are jumping off a 10% growth level, however, the fall is horrific. As we noted, we lost jobs that will never return, and retirement funds that simply will not be recovered in the time left for many of our citizens before retirement. Call me crazy, but the Fed should stop and see what 16 hikes, $70/bbl oil, $3/gallon gasoline, and a spendthrift Congress have got in store for us. Ask ANY retiree who had their retirement account wiped out in 2000 to 2001 whether they would risk a bit of inflation versus what happened to them. We have asked many, and the response ranges from laughter to tears but the answer is the same one.
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Sat Jun 10, 2006 5:10 am |
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