For those who spent yesterday in a fox hole, the Fed made money free yesteday
Bill Flekenstien, who called the housing bust said of it:
For any doubters out there, the last paragraph of the communique read: “The Federal Reserve will purchase large quantities of agency debt and mortgage-backed securities . . . and it stands ready to expand its purchases of agency debt and mortgage-backed securities as conditions warrant.” Furthermore, “the Committee is also evaluating the potential benefits of purchasing longer-term Treasury securities.” My friend Jim Grant said that paragraph should have had the subhead: “Gold $36,000.”
In other words, the Fed went for it — corroborating the view that many of us have held for some time: that when push came to shove, they would let nothing stand in the way of printing any amount of money and monetizing anything required to fend off the ill effects of the unwinding bubble. Of course, there’s an unwritten sequel to this story: The Fed will never get around to taking any of that liquidity back out. Thus, whenever the economy stabilizes, at whatever level, the rate of inflation seen shortly thereafter will be quite substantial, I would guess.
Mr. Fleckenstien is right, we are in for some giant inflation. There is no such thing as a free lunch and no such things as free money. You’ll pay for both eventually and hyper-inflation will be the price of this free money….
Disclosure (“none” means no position):
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