As you may know, the Fed published their December Federal Open Market Committee press release last Wednesday. The biggest news is that the Fed plans to keep rates low for the next two years at least.
From the press release:
"…the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions–including low rates of resource utilization and a subdued outlook for inflation over the medium run–are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014."
The Fed always delays this release for a month after the meeting – apparently because the market is so fragile and tender that it's incapable of hearing actual news from the Federal Reserve as it happens.
But we all know what the Fed wants. Ben Bernanke and his board of governors are putting all of their weight behind monetary policy in order to spur growth.
They're really hoping that with super low interest rates, more people will be inclined to borrow money, to open businesses, to invest, and otherwise spend.
Remember, the Fed's purpose of existence – they're official mantra – is to keep unemployment low and prices stable.
The problem is that if this gambit does not work, and so far it's been a mediocre response at best, then the massive deficits we're running will be impossible to pay down.
Even with MASSIVE growth over the next decade, these deficits will be nearly impossible to pay down. And all of these money printing schemes, (whether they're called Quantitative Easing, the Twist, etc.) will have added trillions of more dollars onto the fire, with no meaningful effect on growth.
So, all we're getting is a small shot at growing out of our deficits, which is in no way guaranteed.
The alternative? Well, you'll hear it from mainstream pundits and politicians that Bernanke and the Fed "saved" us from a worse recession or depression. The story is that without a central bank to step in and provide liquidity, more jobs would be lost, more businesses would close and we'd be worse off now.
It's simply not true.
What you're not hearing from Ben Bernanke or anyone else in power is that the Federal Reserve causes recessions, and exacerbates regular market slow-downs into full-on crises.
You don't have to look far for proof. The Great Depression of 1929-1945 occurred AFTER the Federal Reserve came into existence.
All of our major crises since then have been within one degree of separation of the Federal Reserve. Massive inflation in the 1970s? The Fed was instrumental in that inflation.
The savings and loan crisis of the 1980s? That had everything to do with speculative interest rates, set by – you guessed it – the Fed.
I don't have to remind you of the decades of easy money policy starting with Alan Greenspan, and continued today by Bernanke that lit a huge tinderbox of real estate speculation in 2008.
My point? The Federal Reserve has little ability to stop recessions, because they're the sole author of the biggest recessions in world history.
How do you think these latest gyrations and fancy PhD level monetary maneuvers will affect the economy?
If you guessed we're headed towards another, more severe recession or depression, then I have to agree with you.
Invest with care.
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