Money Printing Is Our Best Bet

By Greg Hunter  Aug 4 2010 1:44PM usawatchdog.com

Monday started out with a bang!  There were strong earnings reported from some big banks, manufacturing rose for the 12th straight month, construction spending edged up (mainly due to government projects) and the stock market jumped 200 points.  Problem solved—economy back on track, right? Wrong!  Tuesday, everything changed.  Some of the auto manufacturers did not have as much earnings growth as anticipated, data was released that consumers are reluctant to spend money; and even though manufacturing rose for 12 straight months, new orders dramatically tapered off during the last three.  Yesterday, a Reuters story spun the sour economic news this way, “Even though recent data has suggested slowing growth, most economists see low probability of another severe downturn in the near future.”

 I don’t know which “economists” Reuters is talking to because everybody from Paul Krugman to Alan Greenspan is warning about deflation and a double dip recession.  Economist John Williams at shadowstats.com has been forecasting another severe downturn in the economy for months, despite nearly $4 trillion in stimulus that was pumped into the banks and overall economy.  In his most recent report, Williams says, “Only politicians and Federal Reserve officials without viable options and Wall Street hypesters would claim that the current structural economic depression could be turned fundamentally by short-lived stimulus measures. Now, as the unaddressed structural issues reassert themselves, the problems at home are at the base of the renewed systemic woes. . .”   

So, while the stimulus is wearing off, the contraction is intensifying.  According to Williams, this is producing some unexpected consequences such as, “. . . additional explosive growth in the federal deficit, an unexpected further surge in Treasury funding needs, and unexpected renewed solvency concerns for the banking system. Such conditions are bad news for the U.S. equity and credit markets.”  I interpret this to mean stocks and bonds are going to take a hit sooner than later.  Long term, think dollar lower and gold higher.  Your main concern right now should be a return of capital and not a return on capital.   

How will the Federal Reserve battle a contracting economy and dreaded deflation?  Look no further than St. Louis Fed President James Bullard.  In a CNBC interview last Friday, he said, “Quantitative Easing is our best bet.”  Quantitative Easing, or QE, is money printing–pure and simple.  Bullard wants more inflation, and with interest rates already at nearly zero percent, there is little else the Fed can do.  Don’t think Bullard is “off the reservation” because his boss, Ben Bernanke, recently told Congressional leaders, “. . . we remain prepared to take further policy actions as needed to foster a return to full utilization of our nation’s productive potential . . . .” 

If the Fed wants inflation, it will surely get it with massive amounts of money printing.  Yesterday’s Wall Street Journal article echoes that thought by reporting, “A senior fund manager at bond-fund giant Pacific Investment Management Co. said Tuesday it is “extremely unlikely” the U.S. could see Japan-like deflation given that the Federal Reserve has the tools to combat a downward spiral in consumer prices.” 

So, the way it looks, there is definitely another plunge coming to the economy.  That will be followed by more stimulus and money printing (QE) and another rise in the economy.  At some point, this stomach churning roller coaster ride will come to an end.  Let’s hope we don’t make the U.S. dollar puke in the process.

Greg Hunter

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Hunter joined ABC News in 1999 from WTSP-TV in Tampa. He has earned a “National Headliner Award," an International “Freddie Award” for health and medical reporting, as well as investigative reporting awards from both the “Society of Professional Journalists” and the “Radio Television News Directors Association.”