Forum Post: Brawl Underway Among Fed, Wall Street Insiders, Over Looming Hyperinflation

A public barroom brawl over financial policy has broken out in the major world banking centers, from Great Britain, to the United States, to Japan and China, over how to address the hyperinflation "meteorite" that is about to strike Planet Earth.

In Great Britain, Moody's downgraded the government's debt rating from AAA to AA1, in the wake of a stronger-than-usual vote in the Bank of England's Monetary Policy Committee on further Quantitative Easing (3 in favor, including Governor Mervyn King; 6 against). In Japan, Prime Minister Abe is visiting Washington to discuss, among other things, his plan to use "hyper-easy monetary policy" to try to revive the Japanese economy. And in the United States, Fed governors and economists are warring openly over whether or not Bernanke's QE policy will unleash uncontrolled hyperinflation.

The latest U.S. episode occurred yesterday at a New York meeting of the University of Chicago's U.S. Monetary Policy Forum, where a group of four monetary economists, headed by Frederic Mishkin (a former Fed governor and co-author of other writings with Ben Bernanke) presented a paper warning that QE had gone so far, that an eventual Fed "exit" from QE could lead to serious losses in the Fed asset book, and unleash further severe inflation. In Fed gobbledy-gook they wrote: "This mix could induce a bias toward slower exit or easier policy, and be seen as the first step toward fiscal dominance. It could thereby be the cause of longer-term inflation expectations and raise the risk of inflation overall." Mishkin further warned that the public attacks on the Fed "are the worst I've seen in my 40 years as a monetary policy economist," and that the risk of evaporation of Fed profits could "come up big time in Congress"—meaning that the barroom brawl has already spread to Congress as well.

The bottle-and-chair-throwing began after "many" participants in the Jan. 29-30 FOMC meeting questioned Bernanke's QE addiction. Then on Feb. 5, the Treasury Borrowing Advisory Committee (consisting of 15 top Wall Street bankers) also raised the danger of QE "exit" blowing out the Fed itself. And on Feb. 15, Bill Gross of PIMCO published his warning that a "Credit Supernova" had been created. (On that same day, Lyndon LaRouche delivered an explosive webcast warning about a hyperinflationary blowout, and explaining that the only alternative to such economic death was implementing Glass- Steagall immediately.)

The paper presented Feb. 22 was co-authored by Mishkin (now an economist at Columbia University), David Greenlaw (Morgan Stanley), James Hamilton (UC San Diego economics professor), and Peter Hooper (chief economist at Deutsche Bank Securities. The audience at the U.S. Monetary Policy Forum event included at least 8 top Fed officials, among them Fed governors Jerome Powell and Jeremy Stein, the NY Fed's William Dudley, and the heads of the regional Feds of Minneapolis, San Francisco, Atlanta and Boston.

The shot across the bow to Bernanke and the other QE addicts, was rejected on the spot by at least two "dovish" regional Fed presidents, including Boston's Eric Rosengren, who complained that "this discussion does not do justice to the policy trade-offs" of the Fed's QE gambit—meaning "what the hell else do you expect us to do?!"

http://larouchepac.com/node/25604