From today’s Special double FED issue
“Which brings me to the present: It’s not the threat of terrorism, an anemic economic recovery, or an impending War keeping the Fed up at night: Its the terrifying prospect of DEFLATION. Real interest rates are now below zero; China and Japan are exporting price decreases. It isn’t too hard to imagine a scenario where deflation lands here. If the insatiable demand of the US consumer ever gets satiated, there could be real trouble.
So the Fed is, once again, flooding the system with liquidity. Their rhetoric makes this imposingly clear: Fed Governor Bernanke’s speech before the National Economists Club in Washington, D.C. yesterday was titled “Deflation: Making Sure “It” Doesn’t Happen Here.” (See chart in docs below).
This will be the 3rd time in 4 years that the Fed is fueling a Nasdaq launch. We all want to ride this rocket for all its worth. But I cannot help but recall that the last 2 times this scenario occurred, it ended abruptly – and quite badly . . .