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Impotent U.S. Fed 'Swings' Limp Appendage

Interest-Rates / US Interest Rates Aug 11, 2010 - 01:23 AM GMT

By: Alex_Wallenwein


Bernanke and the other Fed governors know they are out of bullets, and that even if they had any bullets left, there would be nothing to shoot them at. So, the next best policy option on August 10, 2010 was for them to at least appear to be doing “something” to assure financial markets and institutional investors that they could rest (in peace?) in the secure knowledge that, because the Fed is doing “something” at least, there must still be something it can do to make the economy all better.

Unfortunately, there isn’t.

Talking-head schmooze abounds on TV with indications and suggestions as to what they think the Fed might be able to do, and could do effectively, but astute listeners cannot help but come away with that empty feeling in the pit of their stomach – the same kind of feeling starving people get after a sumptuous meal of nothing but hot water. You know that feeling of fullness won’t last.

So, why is the Fed so impotent?

Because, as noted, it is out of options. It can lower its target rates by buying short and long term – or whatever term – treasuries, but interest rates are already near zero or at historic lows. It can further beef up its “balance sheet” (toxic waste dump) with more filth, but that balance sheet is already bursting at the seams and banks still aren’t lending. The bullets are gone, but the stampeding rhino that’s coming at it (and all of us) hasn’t budged or veered from its course. All Bernanke can do now is strike a heroic pose, pretend to aim his rifle, and yell “Bang! Bang! Bang!” as he tries to convince the markets that he has the situation firmly in hand. He does have something in hand – but it isn’t the situation, and whatever it is, it certainly isn’t firm.

The “stampeding rhino” is a healthy market adjustment destined to slough off all of the illusory excess of past decades of monetary profligacy. For the overall economy it’s healthy. For consumers and (most) investors, it’s short to medium-term painful but long-term healthy. For the Fed and the entire central fiat-banking scheme it so famously represents, it is certain death.

Imagine what will happen if massive deflation comes to world markets and there is nothing the US Fed - or any other central bank for that matter - can do about it. Imagine further that after it’s all said and done, and after people find a way to pick up the pieces and go back to work (as they always do), a true recovery spontaneously erupts without the Fed’s or other CB’s palpable input. What would happen to the Fed? What would happen to central fiat-banking?

You know exactly what would happen. By that time, there will be a very differently composed US Congress, and we might very well get a bill passed that will bring about real Federal Reserve ‘transparency’.

The most transparent things in life are those that aren’t there any longer.

Got gold?

Alex Wallenwein
Should Congress have unlimited power?

Copyright © 2010 Alex Wallenwein - All Rights Reserved

Alex holds a B.A. degree in Economics and a juris doctorate in Law. His forte is research. In late 1996, he began to research how money is used by some to exert political and economic control over others' lives. In the process, he discovered that gold (along with silver) is the common man's antidote to this effort. In writing and publishing the Euro vs Dollar Monitor, he explains the dynamics of this process and how individuals can harness the power of gold in their efforts to regain their political and financial autonomy.

Just like driving your car, investing only makes sense if you can see where you are going. The Euro vs Dollar Monitor is the golden windshield wiper that removes the media's greasy film of financial misinformation from your investment outlook. Don't drive your investment vehicle without it!

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