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Thread: Fed's Lockhart: Oil shock could lead to QE3

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    Fed's Lockhart: Oil shock could lead to QE3

    From CNN:

    If oil prices continue to climb, it could force the Federal Reserve to make a new round of asset purchases, according to Atlanta Fed President Dennis Lockhart.

    Appearing at the National Association of Business Economics in Arlington, Va., Lockhart said that while he doesn't think additional purchases are currently warranted, more stimulus could be needed if oil prices continue to climb.
    Federal Reserve's Lockhart: Oil shock could lead to QE3 - Mar. 7, 2011

    If one is familiar with economic history, an important reason inflation expectations became unanchored and stagflation set in during the 1970s into the first part of the 1980s was on account of overly accommodative monetary policy. In the face of rising inflation, monetary policy should be tightened, not loosened. If the 1970s experience is relevant--and there is little reason to suggest that looser policy in the face of rising inflation would lead to greater economic growth and reduced inflation--maintaining abnormally low interest rates and/or pursuing an additional round of quantitative easing on account of an oil price shock would increase the risk of a sustained and significant bout of inflation. Afterward, monetary policy would very likely have to be tightened to the put of exacerbating a sharp recession so as to reign in inflation and re-anchor inflation expectations.

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    Re: Fed's Lockhart: Oil shock could lead to QE3

    Why would they buy assets? What assets? What does this have to do with oil climbing? Im ignorant regarding this crap.
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    Re: Fed's Lockhart: Oil shock could lead to QE3

    Quote Originally Posted by The Giant Noodle View Post
    Why would they buy assets? What assets? What does this have to do with oil climbing? Im ignorant regarding this crap.

    If I have this right, these are just fancy terms, for once again buying our own debt, what they would do is print more money, and buy up more treasury bonds (IOU's) At least that is my take on it.

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    Re: Fed's Lockhart: Oil shock could lead to QE3

    Quote Originally Posted by The Giant Noodle View Post
    Why would they buy assets? What assets? What does this have to do with oil climbing? Im ignorant regarding this crap.
    In order to buy debt you have to print money that exceeds the amount of the debt, which means an increase in the money supply. More supply of money means less value per unit. It in turn costs increasingly more money to buy the same goods.

    There is always some level of inflation, 1-2% is normal. It allows the economy to adapt to changes in money value over time. If inflation increases too quickly, it creates instability. You go to the store to buy a loaf of bread and it's $2. The next day it's $4. Money becomes increasingly useless.

    The ironic thing is that if we could pay off the national deficit tomorrow, money would have zero value. The only way for money to come into existence is from loans. Therefore if everyone in the country were able to pay off all debts, including the government, there would not be one dollar left in circulation. “If there were no debts in our money system, there wouldn't be any money”. - Marriner Eccles Governor of the Federal Reserve September 30th, 1941 House Committee Hearing on Banking and Currency.

    One dollar in 1913 required twenty-one dollars and sixty cents in 2007 to match value. That is a ninety-six percent devaluation since the federal reserve came into existence. At the rate we're going, we won't have enough GDP to even pay the interest on our debt, let alone the principle amount.

    People badmouth Marxism but our current system is just as backward.
    Last edited by Temporal; 03-07-11 at 05:40 PM.

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    Re: Fed's Lockhart: Oil shock could lead to QE3

    As I have said this is price gouging and has no base in reality.

    I remember a little thing called wage and price freezes in the early 70s to stop runaway inflation and we need something to be done now to change the direction we are headed because I see this as a national emergency that threatens our future economic growth for years to come it everything collapses.

    There is no shortage of oil and Libya isn't in the top 20 oil exporters to us.

    All prices on everything are now in jeopardy of going through the roof and it has got to stop and Obama is doing ZERO to stop it.

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    Re: Fed's Lockhart: Oil shock could lead to QE3

    ^ I was with you until you mentioned Obama. No President has ever stopped the price gouging, except during the OPEC crisis in the 70's and even then it was almost pure diplomacy. Arguably, the wars in the middle east are about energy security, but anyway...

    They price gouge because they can. That's what businesses do. Also, rampant speculation means that it's presumed future supply will be in crisis, but it's all bunk. Economics in general is pure speculation but in my opinion it has been abused to the extreme in recent years. Even food prices are going up now because of oil speculation. It's noticeable, year to year.

    That's what happens when profit becomes the religion of the state. Government has been bought and there's no stopping it. We are increasingly transforming into a corporatocracy.

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