Bankruptcy

Predicting the Fed?s Next Move

By mcbride

Well, this article and interview of financial analyst and chief market strategist at Delta Global Advisors, Michael Pento, actually predicts what the Federal Reserve will do in late summer, early fall when (as he says) the existence of the deflationary recession finally takes hold in the mind of the Fed.  While I do not agree with his ultimate thought that we will suffer an inflationary recession because of the Fed?s actions (and thus should be in gold), I was quite impressed with his knowledge of the overall financial situation in this country at this time.  Fundamentally, Pento states that we should be allowed to go through a short deflationary depression; that while painful, it is the only way that this county will be able to heal from the basic problem: too much debt.  ?Obviously, they [the Fed] can?t lower rates. The Fed is also reluctant to start buying more mortgage-backed securities so soon after ending that program. The alternative, Pento says, is for the Fed to stop paying interest on excess reserves, a move that will drive banks to lend instead of sit on their cash.?  However, Pento thinks that this is a bad idea which will lead only to inflation.  In particular, in the interview, not the article, Pento states: ?if money supply growth were all you needed to engender prosperity, then Zimbabwe would be a perfect example of a booming economy.?  What a wonderful quote! 

Here is a link to the article and the video interview (which is much more through than is the article): http://finance.yahoo.com/tech-ticker/fed’s-next-move-is-to-ease-not-tighten-says-michael-pento-507768.html?tickers=gld,tlt,%5Egspc,TIP,%5Edji,spy,qqqq

Michael

Full post as published by Texas Lawyer Blog on June 23, 2010 (boomark / email).