Friday, June 25, 2010

Bernanke Fights Deflation Again: World Is Walking On Deflationary Quicksand

Amazingly, while we are told that economic recovery is around us, stock markets still very high levels, and while publicly European countries are cutting deficits, Ben Bernanke seems to know a lot more what what he is telling publicly. He is reportedly fighting his colleagues at the Fed to continue quantitative easing and fight deflation.

According to Mr. Ambrose Evans-Pritchard in the Telegraph in the U.K., Bernanke is "waging an epochal battle behind the scenes for control of US monetary policy, struggling to overcome resistance from regional Fed hawks for further possible stimulus to prevent a deflationary spiral". "Fed watchers say Mr Bernanke and his close allies at the Board in Washington are worried by signs that the US recovery is running out of steam".

"The ECRI leading indicator published by the Economic Cycle Research Institute has collapsed to a 45-week low of -5.7 in the most precipitous slide for half a century. Such a reading typically portends contraction within three months or so".

"Key members of the five-man Board are quietly mulling a fresh burst of asset purchases, if necessary by pushing the Fed's balance sheet from $2.4 trillion (£1.6 trillion) to uncharted levels of $5 trillion. But they are certain to face intense scepticism from regional hardliners. The dispute has echoes of the early 1930s when the Chicago Fed stymied rescue efforts".

"We are now walking on deflationary quicksand," said Albert Edwards from Societe Generale.

Read entire article here.

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