dailyreckoning.com.au / By Bill Bonner / June 24th, 2013
Ben Bernanke is losing control. He desperately wants inflation. He’s getting deflation instead. He wants low interest rates; yet rates are rising.
Bernanke is now getting the worst kind of deflation — sluggish price increases against a backdrop of rising interest rates. Consumer prices are rising at their slowest pace in 53 years. And as PIMCO’s Bill Gross says, it looks as though the long bull market in bonds, which began 30 years ago, is finally over. Yields are rising. The Federal Reserve’s borrowing costs are going up.
This is the exact opposite of what the Federal Reserve wants…and needs. Its strategy is to hold interest rates down while it pushes up consumer and asset prices. This would make possible a gradual growth in GDP while the real value of debt was whittled away by inflation. Then it could ‘taper’ its QE.
Instead, the debt gets heavier as yields rise. Backs ache. Legs buckle. Nerves crack.
Old timer Richard Russell comments:
‘Bernanke has finally realized that the Federal Reserve has lost its battle with the primary trend. The Federal Reserve and the economy are now at the mercy of the strengthening primary bear trend. Deflation, which the Fed has tried frantically to hold back, is now taking over. The Fed would like to exit the battle field but it can’t. The mere thought of the Fed giving up the battle to hold back deflation terrifies the stock and bond markets.
‘Years ago Ben Bernanke stated emphatically that he would never, ever allow the nation to deflate — even if he had to drop cash from helicopters to prevent it. But now deflation is happening. And Bernanke, the academician who has never understood markets, is frozen with confusion, consternation, and fear.
Thanks to BrotherJohnF