Jim Rickards Suggests That The Fed Is Targeting High Inflation

10-06-2009 • iStockanalysis

We've discussed in the past that there are plenty of folks out there who would love to see the dollar devalue. Either because it may start a nice commodity rally or will help US exports - there are plenty of people rooting for a weaker dollar.

But Jim Rickards suggests that the US government should be added to that list. And not because it will help US exports, but simply because by devaluing the dollar the US stands a better chance to be able to fund the massive deficits. Inflation makes debt become less painful. Mr. Rickards argues that the target for the US government is to cut the dollar roughly in half of it's current value in 14 years in order to plug some of the deficit holes. This idea actually has some merit because not only does inflation help the deficit issue, but it also helps to stabilise housing prices, which is key for this recovery. With housing prices stable, the bank

ing system can recover more easily as well.

Mr. Rickards view is that the Fed's objective is a slow devaluation to avoid sudden commodity price spikes. To that extent the Fed is watching gold price as an indication of their success. A gradual rise in gold price works, but a more sudden rally will have the Fed raising rates. It's

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