Petaquilla – News, Gold is consolidating at modestly lower levels in advance of today’s FOMC statement.
The Morning Gold Report by Peter A. Grant
Speculation over the past week was that the Fed was prepared to announce as much as $1 trillion in additional quantitative easing measures, which was a contributing factor in the yellow metal’s push to new all-time highs.
However, with inflation in check — at least based on BLS CPI data — and the economy still weak, but not collapsing, it seems more likely that the Fed will keep its powder dry and see if the current QE-lite campaign will keep rates down. We expect the Fed to maintain its “exceptionally low for an extended period” language with respect to the Fed funds target. There may be some clarifying language regarding the Fed’s readiness to ramp up asset purchases if conditions warrant.
I suspect that yesterday’s confirmation from the National Bureau of Economic Research that the “Great Recession” officially ended in June of last year is going to make further accommodations — such as stimulus, unemployment extensions, cash-for-___ and the like — politically more difficult to justify. That may actually leave the Fed as the economy-juicer of last resort, since they don’t need to answer to lawmakers or voters.
Everyone I talked to yesterday scoffed at the notion the recession is over. In the real-world, people continue to struggle and saying they remain “less than optimistic” categorizes those that are the most optimistic.
People are keenly aware that any growth since June 2009 has been driven by massive government borrow and spend programs, with arguably horrible return on investment. Just last week the controller of the city of Los Angeles said the following after conducting an audit of their cut of ARRA stimulus funds, “I’m disappointed that we’ve only created or retained 55 jobs after receiving $111 million.”
Extrapolate that kind of performance across the country, times nearly $800 bln and it becomes quite clear that we put ourselves in a huge hole, with little to show for it. Even if Los Angeles’ $2 million per job created/retained is the exception rather than the rule, improve the national average by 50%, heck even 75% and the ARRA stimulus bill would still be a failure in most rational people’s minds.
There is a day of reckoning coming when we’ll have to figure out how to service our monumental debt burden. As always, the tempting, politically expedient solution is to inflate it away by tanking the dollar. Call it a debt repayment tax, due from everyone and stealthily taken via higher prices on everything.
On the bright side, the NBER went on to say, “the committee decided that any future downturn of the economy would be a new recession and not a continuation of the recession that began in December 2007.” So there you go, the odds of a double-dip recession are officially 0%.
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