What's Next for the Fed: Announce "QE-3"? | Elliott Wave International

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What's Next for the Fed: Announce "QE-3"?
Inflation-engines are sputtering.

By Bob Stokes
Tue, 06 Dec 2011 17:15:00 ET

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As the deflationary trend began to threaten the banking system in 2007, the Federal Reserve and the government itself have been the main deflation fighters.

Both "fighters" are now gasping for air.

In October, the Senate rejected President Obama's half-a-trillion dollar American Jobs Act. This was a milestone "thumbs down," considering how many other government stimulus packages had passed in recent years.

And even though the economy remains weak, the Fed has not announced additional quantitative easing. Has the central bank reached its monetary and political limit?

Even as the Fed was on a quantitative easing tear last year, the June 2010 Elliott Wave Theorist said:

"...the idea that the Fed can inflate 'at will' is going to be challenged. Is the Fed going to monetize—what’s often referred to as 'money-printing'—another $57 trillion worth of dollar-denominated debt...and guarantee $600 trillion worth of derivative promises? Not likely. Can the Fed’s $2.3 trillion balance sheet—already over-inflated—keep a quadrillion dollars worth of worldwide IOUs from imploding? Not a chance. Its own governors are already fighting about the monetization it orchestrated in 2008-2009. The Fed has been historically accommodating so far, but cracks are appearing in its resolve. Some of its own governors disagree about Bernanke’s extreme policies, and that’s after monetizing only 1/7 of 1 percent of the world’s outstanding IOUs."

So what has changed since the first government stimulus package and the Fed's initial round of quantitative easing? The economy hasn't improved. But social mood has certainly grown stronger, namely by turning increasingly negative toward the Fed:

"The ultimate drivers of inflation and deflation are human mental states that the Fed cannot manipulate."

Conquer the Crash, 2nd edition, (p. 424)

Very few people even want the liquidity which the Fed has offered.

No matter how many times it pulls the monetary lever, the central bank cannot make people want to engage in economic activity. The evidence suggests that if anything, society and the government are becoming more frugal.

Despite all the quantitative easings, "lending and borrowing" still move at a snail's pace:

"Federal Reserve Bank of San Francisco President John C. Williams said U.S. banks have been reluctant to boost lending because of a slow recovery..."

Bloomberg, June 1, 2011

Even so, most financial analysts believe the economy is headed toward inflation.

Our economic analysis suggests otherwise. The recently published December Financial Forecast presents a chart which "... shows how deflation is slowly assuming control over the economy..."

See that chart and read our extensive analysis of the economy, stocks, bonds, gold and silver, the U.S. dollar and more. You may follow this link for your risk-free read of the latest Financial Forecast>>

The Latest Elliott Wave Theorist Answers This Important Question About Silver...

...If you are bearish on the economy, should you be bullish on silver?

See the full-page chart which "shows the history of silver prices and economic conditions going back 40 years..." with no risk. Just follow this link>>

Tags: banks, central banks, deflation, inflation, monetary policy, monetization, quantitative easing, social mood, stimulus package, U.S. Federal Reserve (the Fed)

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