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Former Fed Director Predicts Inflation

by admin on December 11th, 2010

Stefan Anderson is a former Director of the Federal Reserve Bank of Chicago with an undergraduate degree in economics from Harvard and a MBA from the University of Chicago. Combined with his experience at the Fed and CEO of a mid-size bank, his voice is as salient as we are likely to find to help us understand the impact of Quantitative Easing 2.0 and its effect on Baby Boomers.

Investopedia describes quantitative easing as “A government monetary policy occasionally used” – not every other year – “to increase the money supply by buying government securities or other securities from the market. Quantitative easing increases the money supply by flooding financial institutions with capital in an effort to promote increased lending and liquidity.”

“Central banks use Quantitative Easing when interest rates have already been lowered to near 0% levels and have failed to produce the desired effect,” as defined in Investopedia. Fed Chief Ben Bernanke announced November 3, 2010 a second attempt to stimulate the economy with $600 billion plus up to $300 billion in Treasuries; this new money is in addition to the $1.8 trillion from Quantitative Easing 1.0.

The national debt is $14 trillion and “We’ve got to confront this problem,” says Sir Julian Robertson, former chief executive officer of the $22 billion hedge fund Tiger Management Corporation. Printing money has “never been the answer to these kinds of problems.” Robertson was praised in Sebastian Mallaby’s book More Money Than God. Said Mallaby: “Tiger’s value-investing tradition made it almost unthinkable for Robertson to buy into the (tech) bubble.”

Likewise, America’s bonds, our primary method for raising money, could become a bad value. “The bigger threat,” says Anderson, “is inflation – which could choke off growth in the equity market – would lead to a significant decline in bond…..
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