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The Fed’s Most Dangerous Game: Checkmate

The Fed can only choose the least-worst option now: either destroy the real economy by sinking the dollar below support and unleashing the Inflation Monster, or abandon the “risk trade” stock market rally.

The Fed’s game plan–sink the U.S. dollar to goose corporate profits, reinflate asset prices and create “modest inflation”–is now the most dangerous game on Earth.

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The Fed is now trapped: if it crushes the dollar any lower, then oil will jump toward its 2008 highs around $140/barrel–a level that triggers recession in the “real” U.S. economy. A recession will disembowel the “recovery” and all the rest of the Fed’s carefully nurtured props of “prosperity.”

The unintended consequences of the Fed’s inflationary plan to depreciate the dollar is evident everywhere in skyrocketing food and energy costs. Destroying the dollar has sparked destabilizing global inflation which threatens to spin out of control.

But if they let the dollar rise, then their precious stock market rally implodes. And what’s left of the mirage of “recovery” if the “wealth effect” evaporates? Zip, zero, nada.

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