Bill Fleckenstein Wants Paul Volker Back

“We have higher costs, creating more inflation, which the Federal Reserve is theoretically supposed to fight. Though it has timidly tightened, it is behind the curve on inflation. Even if the dropping-money-from-helicopter pilots at the Fed feared inflation, they'd be in a box -- as far as doing a lot about it -- because the economy is weakening. (That's where folks should put their attention, rather than sweating bullets trying to figure out what the Fed is going to say next.)”

Like a few other bears, including Steven Roach, and maybe Bill Gross at Pimco, Bill Fleckenstein seems to want to hold Alan Greenspan responsible for the impending rise in inflation and interest rates and possibly subsequent crash in housing prices.

Although I generally agree that the extra-accommodative policies of the Fed have contributed to the run-up in housing prices, I’m not necessarily sure that Greenspan is a complete dunce just because he hasn’t pushed short-term rates to the 6% range yet. More likely, in my view, Greenspan, rightly or wrongly, is relying on other factors to control inflation. More precisely, he might be relying on the high price of oil to reign in inflation, instead of higher interest rates. I also think that he might be relying on Congress’ renewed talk of protectionism to cause the Chinese to reduce their treasury purchases, thereby allowing yields to rise in the face of lower demand.