Sorry I was traveling yesterday. I think the issue is that the items Cashin points out have been fairly stagnant and have both accelerated recently. As you know I have been a huge proponent of the Fed’s QE. Absolutely the right thing to do in a liquidity crisis and a deflationary environment. My concern has always been the exit strategy when demand abates. These might be the first signs of velocity starting to turn around. Then Yellen has to exit and that is going to be tough.
If loans and velocity pick up then I’ll celebrate and call for more of the same —in the mean time we get a 3-day weekend and we’ll do this Monday. Happy Easter!
A good investor always has the exits picked out well in advance of the investment. This is why QE is problematic. Look at its success in Japan.
Yellen is going to have to stay way ahead of inflation. I suspect that Treasury, FDIC, etc. are aware of that hence the increased/increasing reserve requirements. They need to sop that money up and get it out of the economy to avoid serious inflation.
Nomura’s Chief Economist Richard Koo – U.S. Heading For 1900 Percent Inflation Rate
Now let's say he is wrong about 90% of the inflation he's predicting. That's still 190%. Yellen and the FED are in the unenviable position of having to clamp down and stay ahead of inflation every time the economy picks up. It's going to be long and drawn out. I like the way they did things after WW 1. That way worked. I think you'll be eating your words soon, but perhaps it will be me. I will be very surprised if QE works. I think had we let interest rates rise and the economy shake out we would already be seeing real growth in the 5% range.
The other thing is that the FED has near zero control over fiscal policy. Obama and the Democrats (we must never forget that Obama's leaving, but Democrats are forever) are hobbling the economy with terrible policy making.