The Fed's Ticking Inflation Bomb

Larry Kudlow, as usual, said it best. Writing in Investor's Business Daily on September 14, he said:

About 30 years ago, Paul Volcker launched a monumental monetary effort to bring down inflation. As Fed Chairman, he sold bonds, removed cash from the economy, and cared not one whit about rising interest rates.
And it worked. Gold plunged. King Dollar soared, and the drop-off in bank reserves and money extinguished high inflation -- and actually launched a multi-decade period of very high inflation."
This week, current Fed Chairman Ben Bernanke embarked on an absolute reversal of Volcker's policy. He is launching a monumental effort to buy bonds and inject new money into the economy in order to reignite economic growth and job creation.
It is like history repeating itself, but in reverse. Gold is soaring, the dollar is falling. Something's wrong with this picture.

QE3 Kudlow is talking about the Fed's new policy of QE3, announced last Thursday. Under QE3, the Fed will buy $40 billion of additional mortgage securities each month with money it prints out of thin air. QE stands for "quantitative easing," which means in English printing new money. It is called QE3 because this is the third time the Fed has pursued a policy of aggressive new money creation since the financial crisis.
But as the Wall Street Journal editorialized on Friday, "the difference this time is that Ben [Fed Chairman Bernanke] is unbounded." By that they mean that the Fed's policy is to continue the $40 billion a month magic money creation until the job market improves and the recovery takes hold. Or as the Journal further editorialized, "The Fed has declared that it is going all in to cut the jobless rate, no matter what it takes."

Read more: http://spectator.org/archives/2012/09/19/the-feds-ticking-inflation-bom