As I keep saying, global central banks will continue to flood the system with a tsunami of liquidity, and this will be spearheaded by the US Federal Reserve.
And like a messiah, Ben Bernanke delivers the much sought after manna (stimulus bonanza) to her drooling followers (financial markets) as captured earlier by media’s sentiment, by promising to extend zero bound rates from 2013 until 2014.
From the Bloomberg,
“Communicating this inflation goal clearly to the public helps keep longer-term inflation expectations firmly anchored, thereby fostering price stability,” the panel said in a statement. It also enhances “the committee’s ability to promote maximum employment in the face of significant economic disturbances.”
Policy makers declined to specify a goal for employment, saying that it “is largely determined by non-monetary factors.” The committee’s longer-run forecast for the jobless rate is 5.2 percent to 6 percent….
“The Committee expects to maintain a highly accommodative stance for monetary policy,” the FOMC said in a statement. “Economic conditions -- including low rates of resource utilization and a subdued outlook for inflation over the medium run -- are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.”
Of course this will be on top of the existing ones.
From the same report,
The Fed said it would continue to extend the average maturity of its $2.6 trillion securities portfolio, a move dubbed “Operation Twist.” The Fed also maintained its policy of reinvesting maturing housing debt into agency mortgage-backed securities.
Bernanke said that the extension of the “expected point of takeoff” for rising interest rates to 2014 implies that asset sales by the Fed would occur “later than previously thought,” and “presumably in 2015.”
The Fed vernacular about “asset sales” is actually a flimflam; financial markets as well as the financial and banking industry have been deeply conditioned or addicted to sustained injections of liquidity, where any reversal will only lead to intensive convulsions, a scenario which defeats or neutralizes the very intent of the current measures. Thus, the trajectory of central bank actions have greatly been tilted towards sustained inflationism.
This is because the FED officials (and the other central bankers) believes that they can manipulate interest rates with continuing success and without adverse consequences.
As the great Ludwig von Mises wrote, (bold emphasis mine)
The hindrance that the monetary or circulation credit theory had to overcome was not merely theoretical error but also political bias. Public opinion is prone to see in interest nothing but a merely institutional obstacle to the expansion of production. It does not realize that the discount of future goods as against present goods is a necessary and eternal category of human action and cannot be abolished by bank manipulation. In the eyes of cranks and demagogues, interest is a product of the sinister machinations of rugged exploiters. The age-old disapprobation of interest has been fully revived by modern interventionism. It clings to the dogma that it is one of the foremost duties of good government to lower the rate of interest as far as possible or to abolish it altogether. All present-day governments are fanatically committed to an easy money policy
And true to the wisdom of Professor Mises, the policy of interest rate manipulation (to keep interest rates as low as far as possible or for its abolishment) has represented a deeply embedded creed or doctrine which central bankers worldwide piously apply.
Yet considering that every action has corresponding intertemporal consequences, the beneficial effects of the current measures will eventually be exposed as a quack.
And I think such dynamic is being revealed by the actions in the gold market.
Yet contrary to popular mainstream claims that the recent selloff constituted the “end of the bull market” (such as George Soros and Dennis Gartman who eventually flip flopped), gold prices has been affirming my rejoinder that it hasn’t.
Gold prices has reclaimed the $1,700 level!
Again, profit from political folly.
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