Is Fed Policy Going To Take The Asylum To A New Level Of Insanity?

When the Founders were designing this constitutional republic with a federal government having very limited and enumerated powers, they included in their design a balance powers between the three branches of government. They did not plan for a fourth branch of government, a central bank, that would turn out to have limitless power. Okay. Yes, I know that the Federal Reserve is privately own and is only a quasi-government institution at best. But, isn’t that just a technicality? Barack Obama may have the desire to be King; but, it is becoming more and more evident that the Chairman of the Federal Reserve is King and he/she has no plans for giving up the throne. The Fed Chairman, along with the other Kings major central bank chairmen have the power to control the world’s economies. That power has a name. It’s called QUANTITATIVE EASING. And, if Michael Casey writing at Market Watch is correct, the central bankers, led by the Federal Reserve, are about to consolidate and expand their awesome power over the world economy. (Note that I just switched from referring to it as the world’s economies to the world economy because that is what we are really talking about, in this day and age.) 

Ben Bernanke, the soon to be out-going Chairman of the Federal Reserve started his Quantitative Easing (QE) policies in 2009 in response to the 2008 financial crisis, which has been dubbed the Great Recession. Ben’s QE policies of buying bonds and mortgage back securities and zero interest rate policy (ZIRP) were, he told us, designed make it easier for businesses to obtain credit and, therefore, increase investments and create jobs and to make saving unrewarding and, therefore, encourage the consumers to consume. This then would improve the economy and reduce unemployment. Five years later the economic growth is sputter along at 1.5% to 2.0% and unemployment has gotten marginally better primarily due to more and more people dropping out of the workforce either voluntarily or not. More and more people are receiving food stamps and middle class income on average is falling. The only real bright spot has been that Wall Street is setting new record highs.

So, whether by design or by accident, the Fed’s QE policies have turned out to be the best wealth redistribution plan ever invented; that is, if you happen to be among the One Percenters who can take advantage of the raising stock market. For decades the liberals have complained about the rich getting richer and the poor getting poorer. And,, for decades the liberals were wrong. Everybody was getting richer because everybody’s piece of the growing economic pie was bigger each year. Those days are gone! And, if Mr. Casey is right, those days are not coming back for decades, if ever.

For much of this year, the buzz among economist and the financial pundits was when would the Fed begin to taper off of its easy money (QE) policies. Bernanke hinted several times that he thought it was time to ease off, but every time the stock market would take a dive. Now, according to the market Watch article, it appears that Ben has been listening to the Keynesian acolytes and instead of easing off of quantitative easing he may be suggesting that the program should be expanded. The Wall Street pundits forecasting a 20,000 point DOW may get their wish.

November has seen an intellectual rounding of the wagons as influential thinkers have called for even more aggressive monetary accommodation, perpetuating policies that have left the interest rates of developed countries near zero and central-bank balance sheets bloated. Prompted both by a failure to satisfy tens of millions of Western jobseekers and by disinflationary trends that warn of Japan-style deflation, these people suggest that policy “normalization” is too far in the future to even contemplate.

Two senior Fed researchers kicked it off with much-discussed papers arguing separately that the Fed should lower the unemployment rate target — the level at which it would begin raising U.S. interest rates – to 5.5%-to-5.75% from the current 6.5%. Late Tuesday, Chairman Ben Bernankehinted that the Fed could incorporate this revision into its “forward guidance” policy, saying that rates could stay near zero “well after” the jobless rate fell below 6.5%.

Well, gee, that sounds good; 5.5 % unemployment. Except you know that the only way this plan will achieve that is by more and more people dropping out of the workforce. And, the politicians will keep up their give-away programs to make it more lucrative for many to go on the dole instead of working for a living.

Now, dear friends, please read this next quote from the Market Watch article very carefully.

It was up to Lawrence Summers, the former Treasury Secretary who was briefly considered as Bernanke’s replacement, to craft a mega-theory for these shifts. At an International Monetary Fund event stacked with the biggest names in international finance — including Bernanke — Summers argued that the U.S. economy is trapped by “secular stagnation,” which has left the natural rate of interest — the theoretical equilibrium at which full employment is achieved — far below zero, perhaps at negative 2% or negative 3%. It’s a not-so-subtle way of saying we need even more aggressive policies to get around the “zero bound” floor on the Fed’s target interest rate. Summers’s remarks have been warmly embraced by influential commentators such as Paul Krugman at the New York Times and Gavyn Davies at the Financial Times.

They are seriously talking about negative interest rates. Think about what that will mean to those who were responsible and diligently saved for their retirement years.

Since the days of President Lyndon Johnson, we have watched those on the government dole become addicted to their freebies. And, the politicians have been more than willing to keep the “freebie” drug flowing in exchange for votes. Similarly, the One Percenters and Wall Street have become addicted to easy money policies of the Fed and it appears that the Fed is going to keep their addicts hooked. It looks like there will be no tapering-off in the foreseeable future. The Fed’s balance sheet will grow by untold trillions using money they create out of thin air, the middle class will continue to be marginalized as the ranks of food stamp recipients grow, the politicians will demand more taxes from the rich and they will not complain too much as long as they continue to get a bigger piece of the slowly growing economic pie. This game of kicking the can down the road may last much longer than many of us thought possible.

Well, that’s what I’m thinking. What are your thoughts?

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10 thoughts on “Is Fed Policy Going To Take The Asylum To A New Level Of Insanity?

  1. Well done Jim. I agree with all of it. I don’t think they can taper at least not in the foreseeable future although they make talk about it. 2013-2014.

    However, I do believe that the President’s working group on financial markets has been doing everything they can do to suppress the counterweight- gold and silver, precious metals. Gold rises as inflation and money supplies continue. In an all out assault by the world’s central banks- I believe at some point the gold genie will come out of the bottle- probably when the supply is completely dried up.

    I don’t think that is far away. You’ll need some precious metals when the world’s fiat systems collapse in unison.

    1. I remember reading at FOFOA some months back that the paper gold trading market is used to keep a lid on gold price and thereby keep a lid on oil price. The same article said that Another estimated in 2010 that the true price gold was about $100,000 per ounce if it wasn’t for the paper gold trading at much higher volumes than real gold that exist in the market. If he was right, imagine what the “real” gold price would be today?

  2. It took 40 years to reach this level of sophistication. It began almost innocently enough when we went off the gold standard, allowed the 1973 oil embargo (who got rich here?) the Russian Wheat Deal (who got rich here?), allowed the 1979 oil embargo (who got rich here?). QE has replaced all this antiquated silliness. And why would we need wage and price controls when there are no jobs and free money via gov’t freebies. The Romans placated the the mobs by feeding criminals and slaves to the lions. Today the criminals are feasting while destroying a once great economy while the slaves line up at the welfare and unemployment offices.

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