Fed Advocates Higher Inflation And Larger Deficits! – Ep. 187

* The dollar was broadly weaker today with the dollar index closing down .85 to 94.78
* At that time gold was up about $18; sliver up about .25
* Then all of a sudden New York Fed Chairman William Dudley in an interview on Fox Business basically said that a September rate hike was still possible
* Look, a September alien invasion is still possible, but I'm not going to waste my time preparing for it
* What's amazing to me is how all of the villagers still come running every time a Fed official cries "Wolf!"
* Haven't they noticed that they've cried, "Wolf!" over and over again and there's never a wolf?
* I think that Dudley purposely came out and mentioned a September rate increase just to keep the markets in check; to preserve the false narrative that there is actually a recovery, instead of a bubble
* All of a sudden, gold sold off, it went from +$18 to +$2 or $3
* Silver went negative; it lost its entire rally in a matter of minutes
* I think Dudley was trying to undo the damage done overnight by Dudley's counterpart at the San Francisco Fed, John Williams' well-thought out paper
* Williams wrote in his piece that he believes we're in a "new era". He doesn't understand that the new era that we're in is collateral damage from central bank monetary policy
* They think this is a random occurrence that needs a new government prescription
* John Williams is proposing, based on this "new normal" the neutral interest rate is so low, it's almost impossible for the central banks to get there, absent negative interest rates
* What Williams is proposing, is more inflation
* What he is arguing is that we should scrap this 2% inflation target and that we need a higher number
* I've been saying for years that this is going to happen
* It's just like the unemployment rate, where they said, "We'll raise interest rates if it gets below 6.5% and then we let it go below 5%
* We kept moving that goal post
* I said the same thing was going to happen to inflation
* In fact it is happening. If you look at the CPI numbers that just came out today, we continue to be above the 2% level on the core; we've been there for many months in a row
* Now they're already starting to say, "Hey wait a minute, 2% isn't high enough
* We need more inflation because we need lower rates, and the only way to get there is to have higher inflation
* This is what I have been expecting
* If you read William's piece, he says one of the ways we should get there is for the Fed to target nominal GDP
* In other words, not GDP after you adjust for inflation
* I've argued that the deflator is under the actual inflation number, therefore overestimating GDP growth
* The Fed is saying, "Who cares about the GDP deflator?
* All we care about is the nominal number
* We don't care if the growth is real or inflationary, we just want nominal GDP numbers to go up"
* What good is that?
* No one benefits from phony GDP growth that is simply a by-product of inflation
* The whole point is that we want the economy to actually, grow, not for just prices to go up
* But what the Williams is saying is no, all we care about is prices going up
* It's all about style over substance
* That's why we're stuck in this malaise
* Additionally, what Williams was also arguing for was more fiscal stimulus
* He was saying that we're at the end of our rope with interest rates at practically at zero
* We need the government to provide more stimulus in the form of deficit spending
* We've already got about a $20 trillion national debt
* If deficit spending were stimulative, why haven't we gotten a huge stimulus from that $20 trillion of debt?
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