Federal Reserve Board Chairman Ben Bernanke has shut down his printing presses, and deflation is now on the prowl in the U.S., writes famed business journalist Ambrose Evans-Pritchard.
Evans-Pritchard says the “most audacious” monetary experiment in modern history ended on April Fools' Day, and soon the United States must walk without crutches, on “gangrenous” legs.
“The U.S. Federal Reserve has completed its purchase of $1.7 trillion of mortgage securities, agency debt and U.S. Treasuries, the conjuring trick of credit easing that allowed Ben Bernanke to create stimulus equal to 12 percent of GDP,” Evans-Pritchard recently wrote in his column in the Telegraph (U.K.).
“The Fed's money creation has been more or less the size of Washington's borrowing needs for the last year, as Beijing notes with suspicion. My view — anathema to readers, I fear — is that Ben Bernanke and Britain's Mervyn King saved us from potential calamity.”
For a while, the U.S. economy was “too close to the tipping point,” a moment when the sailing ship catches water and capsizes instead of righting itself by natural rhythm, writes Evans-Pritchard.
Now the Fed is easing up, hoping that private creditors step in and buy U.S. bonds, as yields spike.
“Bernanke is taking the fateful decision to knock away the props of the mortgage market even though the M3 broad money supply has been contracting at an epic pace of 6 percent since September,” says Evans-Pritchard.
“If M3 (the money supply) gives early warning of six to 12 months, beware. Bernanke does not look at M3, disdaining such monetarist eccentricities as medieval sorcery.”
Other observers are urging caution for the Fed.
The Washington Post and New York Times are reporting on the likely impact of the “exit strategy” being pursued by Bernanke, including redeeming and selling financial instruments.
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