Raise Rates Soon or Face Inflation Disaster, Experts Warn

Fed watchers and even some members of the central bank itself are beginning to clamor for a move away from virtually zero interest rates. They fear an inflation inferno is boiling just below the incipient economic recovery. The Fed slashed rates and pumped hundreds of billions of dollars into financial markets to keep them from freezing in panic over bank losses. Since then, the level of risk the banks face has become clearer, but rates have stayed very low. It could be argued that the Fed action staved off a much wider collapse, but economists are beginning to wonder – at what future cost? – Money News

Dominant Social Theme: So many problems.

Free-Market Analysis: We were pleased to read this article as even the most iconoclastic of publications (such as ours) enjoys occasional reinforcement, and this story, reporting on the views of one of the most prominent mainstream Fed watchers reconfirms what we've been boldly writing about ourselves over the past weeks and months. We came to our conclusions because to a degree anyway we utilize free-market economics and the business cycle when trying to figure out the way the world works. This is good for readers. It is easy for readers to understand what we are analyzing and to check whether our predictions and focus are grounded in a transferable reality.

Our approach is unlike, say, various American cable television channels. There, you might find one kind of analysis offered at one point and another the next minute. This is because no formal point of view animates these channels. Their reporters are supposed to be objective. Of course, beneath the surface, a Keynesian perspective is for the most part adhered to, which makes it even more confusing for viewers. Nothing is stated in terms of how the world works, but beneath this consciously objective pose lurks a far more intricate – and ultimately unworkable – point of view.

We believe most top traders in the business analyze the economy the same way. George Soros, for instance (see today's other article) had a good deal of training in free market analysis and applies it constantly. He simply doesn't choose to speak of it and has indeed throughout his career artfully avoided offering it up to the general public. But economists like George Metlzer are far more frank about where there analysis comes from and how they derive their conclusions. Here is something on Meltzer from the same article:

Allan Meltzer, the economist who is known as the dean of Federal Reserve watchers, says the central bank should pull back on its massive easing program to avoid an inflation surge. "I'm not worried about inflation tomorrow," Meltzer tells Bloomberg TV. "I'm worried about inflation two years from now, and the way to prevent it two years from now is to start doing something now." The Fed should "slow the rate at which it increases money growth," Meltzer says. "It's the agent of the Treasury now." Signs of future inflation are rampant, he says. "Mortgage rates are starting to move up, bond rates are starting to move up," Meltzer points out. "People are nervous. The dollar is declining. The money growth rate is too high. It takes a couple of years to slow it down." Meltzer doesn't want the Fed to completely halt its easing campaign. "I just want them to look ahead a little bit." He says the current situation reminds him of the 1970s. "The people in the '70s weren't stupid," Meltzer points out. "They knew that they were creating inflation. But they worried about unemployment. ... That's how we got the big inflation."

See, Meltzer agrees with us. For many months, we have written that inflation will be a problem. We have written that the monetization policy of the Feds will cause more problems. Hey, we just want to make sure we place our bona fides on the table in case someone wants to refer to the Daily Bell as the "dean of Swiss-based Federal Reserve watchers."

Conclusion: Unlike Meltzer, we don't want the Fed to completely halt its easing campaign, we want the Fed to get out of the business of making money entirely. How pleasant it would be not to have to write about the various rhetorical flourishes surrounding central banking, the million-and-one justifications for monetary policy that can never be justified because at bottom it is nothing but price fixing. Of course, once every 25 years or so this system results in an incredible run up in the prices of money metals, gold and silver. But we'd rather have a stable money supply and make a gram, ounce, buck or a franc on something other than speculation.

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Reply from the Daily Bell:

He seems to be seeking a higher profile lately.

Reply from the Daily Bell:

Soros' "gambles" are based on the business cycle, however. And Rogers' positions seem to be as well. They both do the same sorts of things, even if they express it differently in our opinion.

Reply from the Daily Bell:

We like hiim, too. But some of the things he's said recently have puzzled us.

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We look forward to reading your feedback. All comments are automatically posted. However, please note that any posts containing harassment, vulgarity, personal attacks or those which are deemed to be of a violent nature are not welcomed and will either not appear or be removed.