Hoping for Clinton, Getting a Carter

The Fed announced that it will flood the economy with over $1 trillion of money by buying up Treasury debt. First came the spending earthquake, next the aftershock of debt monetization. The inflation tsunami should hit by 2011. Time to look at buying real estate, commodities, gold, and companies that own hard assets.

The Fed said [that it] will buy up to $300 billion in long-term Treasurys over [the] next six months. The purchases of mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac will push the maximum to as $1.25 trillion, up from the previous $750 billion. The Fed also said it would increase the size of its potential purchases of the mortgage giants' debt to $200 billion from $100 billion.

I had middling expectations for this President. If he comes out of these four years roughly matching the economic success of the Clinton Administration, that would be a good result. Instead, the coming inflation threatens to make the next four years Carter II. Let’s hope and pray that there are no international challenges (and failures) to round out the recollection.

[Note: this economist thinks we won't see near-term inflation due to slack in the economy.

If there’s one aspect of the current environment that still amazes, it’s the fact that nothing amazes anymore. Even today’s announcement that the Federal Reserve plans on purchasing everything in America that isn’t nailed down raised relatively few eyebrows on our end… Effectively, the Fed is monetizing the Treasury’s debt, a strategy that appears in the encyclopedia under the heading “how to trigger inflation.” In any other environment, this monetization would be deeply troubling, but given the lack of end user demand, the prospects for a near term pop in prices is rather remote. The aggressiveness also suggests that the Federal Reserve remains highly concerned about deflation.
–Guy LeBas, Janney Montgomery Scott]