Monday, March 7, 2011

Federal Reserve's Lockhart: Oil Shock Could Lead to QE3

From the "Office of That was Not a Surprise" we have news reports that Federal Reserve President Dennis Lockhart is offering that higher oil prices could lead to the next round of Quantitative Easing.  

  • 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.
  • "If [the rising price of oil] plays through to the broad economy in a way that portends a recession, I would take a position we would respond with more accommodation," Lockhart said at the conference.

This is not a shocker on so many levels.... The Bernank seems to live in a surreal world where he claims QE is raising the price of assets but ONLY in the stock market.  There is some chinese wall apparently where the flood of liquidity stops the minute it gets to commodities, but only goes into stocks.  I guess to sleep at night you have to delude yourself into some sort of logic like this.  But larger picture this is akin to Bernanke's Iraq war... he will find a reason to QE infinity.  The specific reasons are really quite immaterial - they will find one.

Even more laughable is what I wrote last week -

Ironically the more QE to come, the more speculators will drive up commodities.... which will impair corporations (who might cut jobs to preserve profit margins) and consumers... which (in the Fed's mind) will require more QE.  Circular logic anyone?  

If this policy weren't so darn pathetic and hurtful to those in the lower and middle tranches of society it would be laughable.  The higher oil goes, the more they QE, which will help speculators drive oil prices even more high, which will require more QE.  Rinse. Wash. Repeat.  I believe Charlie Sheen would call this policy "Winning." This is where you laugh.  Or cry.  

Anyhow, based on track record I am sure we're in good hands  - ahem.

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