So says Louis Woodhill, here:
While the IOR rate has been constant at 0.25% since December 2008, the 90-day T-bill has fallen from an average of 0.14% in November 2010 (when QE2 commenced) to zero today.
Most people believe that an inverted yield curve heralds a recession, and right now we have an inverted yield curve at the point where new money is supposed to enter the economy. Not surprisingly, more and more economic indicators are now signaling recession. And, with inflation accelerating, the specter of stagflation once again looms over the land.
America does not need QE3, it needs a complete reversal of Fed policy. The Fed should end IOR. Then it should announce an upper limit for the gold price and use Open Market operations to contract bank reserves as needed to enforce this ceiling price. To accomplish this, the Fed would have to let interest rates be set by the markets, rather than by fiat.
The ultimate solution for a stable dollar, stable financial markets, and a stable, growing economy is for Congress to pass H.R. 1638, which would require the Fed to keep the value of the dollar stable in terms of gold. Until then, let’s pray that the Fed learned its lesson with QE2, and that it doesn’t give us QE3.
