The Fed Thinks Higher Prices Are Good For You

The Federal Reserve Board’s quantitative easing program was an unprecedented monetary experiment that dumped trillions of dollars of new money into the economy.

Historically, adding that much money to the economy should have caused hyperinflation, but the economy was so weak, it took the Federal Reserve Board eight years of loose monetary policy to boost the U.S. inflation rate to 2%.

Now, though, some Fed members think that 2% isn’t enough.

Readers old enough to vote during the Carter and Ford years remember when the Fed’s role was to lower inflation, not raise it. In 1974, inflation hit 11.03%, and from 1979 through 1981 inflation reached 11.22%, 13.58% and 10.35%. In the Ford era, Whip Inflation Now (WIN) buttons were created. They did little to control rising prices.

We haven’t seen any Boost Inflation Now buttons, fortunately, but helping the economy by increasing inflation is the dumbest idea since negative interest rates. Given the Fed’s recent history, that may be its appeal.

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More Government, Less Manufacturing

As the first country to mass produce everything from automobiles to computers, America has a well-deserved reputation for innovation, thanks to its manufacturing sector. U.S. government employees, conversely, are most adept at producing paperwork, as we’ve previously noted.

So which sector do you think employs more people in the U.S.—those who produce or those who bog down production with new regulations?

The answer—and it’s not even close—is that government employees outnumber employees working in manufacturing. In fact, as of a year ago, there were 21,995,000 government employees and 12,329,000 manufacturing employees.  That’s 1.8 government employees for each manufacturing employee, or one employee to produce and nearly two employees to regulate.manufacturing_and_government_employees-1939-2015

Granted, not all government employees are regulators and many serve valuable roles … but is it healthy for the economy to have nearly twice as many employees working in government as we have working in manufacturing?

It didn’t used to be this way. Until August 1989, manufacturing employees outnumbered government employees. But that month, government employed 17,989,000 and manufacturing employed 17,964,000. The two sectors have been going in opposite directions ever since.

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Key Indicators Negative Across The Board

The worst things get, the more they stay the same.

As the stock market continues to set records, the latest Philadelphia Fed Business Outlook Survey shows that the business outlook for manufacturing is weakening.  Of course, that could help continue to boost the market, since it gives The Fed an excuse to continue its quantitative easing.

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WOW! Manufacturing Index Up 0.2%!


“Been down so long, it looks like up to me.”

Furry Lewis

This is what passes as positive economic news these days: The Institute for Supply Management’s (ISM) reported Thursday that its index of purchasing managers edged up to 51.7% from 51.5% in September.

Wow!  A whole 0.2% gain!

Yet it was positive enough to send the Dow Jones Industrial Average up 1% (136.16 points) yesterday, in the last Thursday before the Presidential election.

It was the biggest gain since the latest round of quantitative easing (QE3) was announced on Sept. 13, 2012 – but it doesn’t erase the market drop that has taken place since then. read more

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