Fed Guzzles Salt and Fresh Water Ideologies while Washington Strikes a "Dairy Deal"

As we begin 2013, we reflect on some economic predictions that never came true. After the Fed's unprecedented actions in 2008, some predicted massive double digit inflation by now. Yet headline consumer price inflation, as of November 2012, was below 2 percent. And as for inaccurate predictions, Federal Reserve's expectations of growth over the past 10 years have greatly overstated actual growth. These inaccurate predictions are now the basis for Fed policy, as the FOMC announced in December "The Committee...currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as...inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee's 2 percent longer-run goal." We talk to Pragmatic Capitalist Cullen Roche about why so many wrongly predicted inflation and what the Fed's overly optimistic past predictions mean for its future interest rate guidance. He breaks down monetary mechanics and his view on why this understanding is missing from mainstream economics.

And just as we thought the wrangling over the fiscal cliff had finally finished, it turns out more political theater lies ahead as politicians are forced to sort out the debt limit and additional spending cuts in the next few months. Today we focus on the tax hikes passed as part of the fiscal cliff deal, which are set to raise 600 billion dollars in revenue over the next 10 years. But what does 600 billion over 10 years actually look like? Lauren puts it in perspective in today's reality check.

Plus, why is the government involved in keeping the price of milk low? Part of the fiscal cliff deal involves averting what some have dubbed a "dairy cliff." Lauren and Demetri discuss the how the aversion of the "dairy cliff" might advance global warming. Also they discuss the six hackneyed economic phrases they hope to retire in today's "Loose Change." Source