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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