Market investors are expecting help from the Federal Reserve as the recovery stalls so the markets continue to move higher. But experts are suddenly divided on the question of the value of another helping handout from government to its’ selected minions.
Most everyone remembers the threat given to House Speaker Nancy Pelosi in November 2008 on a Friday when the Toxic Asset Relief Program was being discussed. “If we don’t do something now, the economy will be dead by Monday.” Most everyone recognizes that the threat was a lie, except for some actual Congressional voters.
Since that fateful vote America has had a stimulus package and QE2 shoved down its throat.
None of the “stimulus” bills have accomplished what was promised. America is still in a jobless recovery and the economic growth that was promised has fizzled. The only thing standing from the disastrous printing spree undertaken by the Feds is the corrupt financial system. The bankers and favored investors have gotten wealthier, everyone else is descending into poverty not seen since the 1930s.
The Fed isn’t through tinkering. Somehow it feels it has to tinker or the whole system will fail.
One of the best bullets the Fed had was depleted during the late Bush years. Each quarter-point of interest rates charged by the Fed to banks for loans was a bullet. But firing each of these bullets doesn’t bring about instant results, the economy won’t let you know how it would react for 18 to 24 months to each quarter-point decline. Chairman Ben Bernanke fired his bullets almost monthly and sometimes popped off multiple shots at once with half- or three-quarter point moves.
He had no idea what he was aiming at, what he was hitting (or missing) or even if he was doing the right thing. All he really knew is that was how economic crises had been handled in the past and he wasn’t going to leave the gunfight with even one unspent round even if he was shooting before he knew the full effects of his previous shots.
The result is we have all-time lows on interest rates on everything. But inflation is looming for all the valueless dollars added to the system. That’s where the rub comes in.
All of the tricks Bernanke has tried and hints he will use only stimulate the stock markets making it appear things are better than they actually are. Eric Sprott, Chairman of Sprott Money Ltd, has looked at the Fed’s interventions and the effect on the economy. He flatly states any further Fed intervention is doomed to failure as much as past efforts.(1)
“All these tools don’t work. They do nothing for the economy. We are probably in a recession right now in the U.S., they are definitely in one in Europe and we are seeing a manufacturing recession in China. All these things central banks try…well, the bottom line is they don’t work. They don’t stimulate the economy but merely keep asset prices inflated.”
What Sprott looked at first was the weakness in the fundamentals on which the economy stands. I use the housing sector and the jobs reports, Sprott used the housing sector and the auto industry weaknesses as major downsides but then tossed inflation into the mix.
“What we have going on is governments and central banks printing money to bolster their banking systems. While they are doing this they are destroying the value of their currency.”
What is ironic is Sprott, who deals with ordinary people daily, is in direct opposition to media outlets which hail the government actions. The Chicago Tribune in a recent editorial urged the Euro Union to continue helping the faltering countries within it, citing the rising borrowing costs of Spain and Italy as prime reasons for speed. Even American liberal economist Paul Krugman knows that path will only hasten the demise of the euro even though he supports the aid to the deadbeat governments involved just to keep the euro alive.
In the Tribune piece it was asserted, “Every American should be rooting for Europe to find a fast track solution to a debt crisis that so far continues to unfold in frustrating slow motion.”
The slow motion is because government bureaucrats got involved. A truly free market would have already cut the deadwood and the Euro Union economies would have been on the road to recovery by now. America needs to have the free market finish the job quicker than the Europeans are allowing.
Ben Bernanke, go forward with a truly bold step. Tell America’s markets you will no longer interfere with “stimulus plans” but will let enterprises rise and fall on their own merits. That’s what a free market is supposed to do. Reward people with solid plans and goods and demolish those with half-baked ideas or faulty goods.
It does not matter if it is a stipend for housing assistance or food stamps to an individual or a massive handout to a Solyndra-type. All government assistance utilized to specifically support the economy should be curtailed.
Deflation from a fully-collapsed market will get us back to a solid starting point for the economy to take a big leap forward. As it is now the economy is like a man treading water in the ocean and trying to leap up without a base. He can bend his knees and thrust with all his might, but he doesn’t get anywhere until he can touch bottom.
It won’t be easy but finding bottom is America’s only chance for economic survival. Holding valueless dollars to throw at a mountain of debt is what we are heading towards. History, through the ruins of hundreds of societies over 40 centuries, teaches that doesn’t work so well.
“I have sworn on the altar of God eternal hostility to every form of tyranny over the mind of man.”–Thomas Jefferson
(1)–Moneynews, July 30, 2012, “US in A Recession and Stimulus Policies Won’t Help”
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