Wiedemer: Fed’s Medicine Will ‘Become Poison,’ Spark Inflation
In its quantitative easing, the Fed is buying bonds with printed money, which will boost inflation and interest rates, Wiedemer tells Newsmax.TV.
“The medicine they’re using to help us out now will soon become the poison. … U.S. debt is toxic because it can’t be paid off,” says Wiedemer, president of the Foresight Group, a macroeconomic forecasting firm that customizes its forecasts for specific businesses and investment funds.
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The Fed can create wealth in the short term, as its money printing buoys the stock market, he says. And a rising stock market increases wealth, especially among the rich, leading to more spending.
Reaching 10 percent inflation will take a while, Wiedemer says. “The hard part is getting to 10 percent,” he explains. “Once you get there, it speeds up.”
The normal lag period between increasing money supply and rising inflation is 24 months, Wiedemer says. And in this slower economy, it could take longer. “So we could be looking at a two- to three-year period before we see significant inflation on the road to 10 percent.”
And the Fed isn’t likely to stop easing anytime soon, he says. “What I’m most concerned about is QE3, QE4. That’s when you’ll see negative effects on the market. People will realize this will bring inflation.”
The Fed won’t be able to reverse course, Wiedemer says. “If you pull money out of the economy, it will pop the bubbles. Our economy can’t handle 15 percent interest rates, specifically real estate and the stock market.”
The Fed bailed us out of the credit crisis, he says. But that just transferred the crisis from the private sector to the public sector. “We’re moving up the chain of bubbles.”
Republicans’ takeover of the House is a positive sign, but not a panacea, Wiedemer says. “We will see a reduction in the increase of spending. For the first time in a long time, we will take a serious look at cutting the budget deficit.”
But huge problems remain, he says. Reductions in entitlements are off the table. “So we’re looking at discretionary spending. Even if we eliminate all of it, that still wouldn’t get rid of the deficit,” Wiedemer explains.
And about half of discretionary spending goes to the military, which many Republicans promise not to cut, he notes. “An awful lot is off the table. We are facing some mountain, no matter who’s in office.”
As for investors, they can expect bonds to melt down first, then stocks and real estate, Wiedemer says. Foreign currencies, gold and commodities are the best protection.
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