The Future: Skyrocketing Consumer Prices, Outright Inflation and Rising Rates

Posted by :John P. Hussman, Ph.D.

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I read a lot, and one of the best minds I’ve come across is John Hussman of the Hussman funds. John knows the Fed and the economy from head to toe, backwards and forwards, and what John Hussman writes I always find of great interest. I’m starting this site with two paragraphs from John’s latest weekly report (read it in full on Hussman Funds). In brief, John believes that the build-up of government liabilities (and Lord knows we have ’em) results in outright inflation. Please read the excerpts below courtesy of John Hussman. I might add that John believes that some of the Fed’s current and recent activities skirt on the edge of the law. – Richard Russell – Dow Theory Letters


“As I wrote several weeks ago, the Federal Reserve has expanded the U.S. monetary base by more than 150% since the beginning of the recession. That is not a typo. The monetary base has soared from $800 billion to over $2 trillion. Much of this has been accomplished through outright purchases of mortgage-backed securities (not repurchases) and an equivalent creation of base money. Unless these securities can be sold back out into private hands for the same value that was paid to acquire them, the Fed will have effectively forced the U.S. government to make its implicit guarantee of these agency securities explicit, without the authorization of Congress. To the extent that the underlying mortgages default, the U.S. government will be forced to issue additional Treasuries to retire the mortgage backed securities now held by the Fed. Alternatively, if the U.S. does not explicitly bail out Fannie Mae and Freddie Mac to the full extent, the Fed will have created money, with no recourse, and without the equivalent backing of assets or securities on its books. In short, the Fed is now engaging in unlegislated, back-door fiscal policy.”

“What is likely, in my view, is that we will observe far greater issuance of government liabilities, which will predictably create a near doubling of the consumer price index in the coming decade ( (though probably not for a few years due to credit concerns, which dampen monetary velocity). It is notable that the massive expansion of government liabilities beginning in the late-1960’s eventually exploded into uncontrollable inflation by the late 1970’s. There are lags between the creation of government liabilities and their inflationary effects. But to expand these liabilities as recklessly as the Fed and Treasury are now doing is to undermine the long-term foundations of the economy.”

….full John Hussman Article: Timothy Geithner Meets Vladimir Lenin HERE.