Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Further Gold Price Pressure as the USDX Is About to Rally - 23rd Oct 20
Nasdaq Retests 11,735 Support - 23rd Oct 20
America’s Political and Financial Institutions Are Broken - 23rd Oct 20
Sayonara U.S.A. - 23rd Oct 20
Economic Contractions Overshadow ASEAN-6 Recovery - 23rd Oct 20
Doji Clusters Show Clear Support Ranges for Stock Market S&P500 Index - 23rd Oct 20
Silver Market - 22nd Oct 20
Goldman Sachs Likes Silver; Trump Wants Even More Stimulus - 22nd Oct 20
Hacking Wall Street to Close the Wealth Gap - 22nd Oct 20
Natural Gas/UNG Stepping GAP Patterns Suggest Pending Upside Breakout - 22nd Oct 20 -
NVIDIA CANCELS RTX 3070 16b RTX 3080 20gb GPU's Due to GDDR6X Memory Supply Issues - 22nd Oct 20
Zafira B Leaking Water Under Car - 22nd Oct 20
The Copper/Gold Ratio Would Change the Macro - 21st Oct 20
Are We Entering Stagflation That Will Boost Gold Price - 21st Oct 20
Crude Oil Price Stalls In Resistance Zone - 21st Oct 20
High-Profile Billionaire Gives Urgent Message to Stock Investors - 21st Oct 20
What's it Like to be a Budgie - Unique in a Cage 4K VR 360 - 21st Oct 20
Auto Trading: A Beginner Guide to Automation in Forex - 21st Oct 20
Gold Price Trend Forecast into 2021, Is Intel Dying?, Can Trump Win 2020? - 20th Oct 20
Gold Asks Where Is The Inflation - 20th Oct 20
Last Chance for this FREE Online Trading Course Worth $129 value - 20th Oct 20
More Short-term Stock Market Weakness Ahead - 20th Oct 20
Dell S3220DGF 32 Inch Curved Gaming Monitor Unboxing and Stand Assembly and Range of Movement - 20th Oct 20
Best Retail POS Software In Australia - 20th Oct 20
From Recession to an Ever-Deeper One - 19th Oct 20
Wales Closes Border With England, Stranded Motorists on Severn Bridge? Covid-19 Police Road Blocks - 19th Oct 20
Commodity Bull Market Cycle Starts with Euro and Dollar Trend Changes - 19th Oct 20
Stock Market Melt-Up Triggered a Short Squeeze In The NASDAQ and a Utilities Breakout - 19th Oct 20
Silver is Like Gold on Steroids - 19th Oct 20
Countdown to Election Mediocrity: Why Gold and Silver Can Protect Your Wealth - 19th Oct 20
“Hypergrowth” Is Spilling Into the Stock Market Like Never Before - 19th Oct 20
Is Oculus Quest 2 Good Upgrade for Samsung Gear VR Users? - 19th Oct 20
Low US Dollar Risky for Gold - 17th Oct 20
US 2020 Election: Are American's ready for Trump 2nd Term Twilight Zone Presidency? - 17th Oct 20
Custom Ryzen 5950x, 5900x, 5800x , RTX 3080, 3070 64gb DDR4 Gaming PC System Build Specs - 17th Oct 20
Gold Jumps above $1,900 Again - 16th Oct 20
US Economic Recovery Is in Need of Some Rescue - 16th Oct 20
Why You Should Focus on Growth Stocks Today - 16th Oct 20
Why Now is BEST Time to Upgrade Your PC System for Years - Ryzen 5000 CPUs, Nvidia RTX 3000 GPU's - 16th Oct 20
Beware of Trump’s October (November?) Election Surprise - 15th Oct 20
Stock Market SPY Retesting Critical Resistance From Fibonacci Price Amplitude Arc - 15th Oct 20
Fed Chairman Begs Congress to Stimulate Beleaguered US Economy - 15th Oct 20
Is Gold Market Going Back Into the 1970s? - 15th Oct 20
Things you Should know before Trade Cryptos - 15th Oct 20
Gold and Silver Price Ready For Another Rally Attempt - 14th Oct 20
Do Low Interest Rates Mean Higher Stocks? Not so Fast… - 14th Oct 20
US Debt Is Going Up but Leaving GDP Behind - 14th Oct 20
Dell S3220DGF 31.5 Inch VA Gaming Monitor Amazon Prime Day Bargain Price! But WIll it Get Delivered? - 14th Oct 20
Karcher K7 Pressure Washer Amazon Prime Day Bargain 51% Discount! - 14th Oct 20
Top Strategies Day Traders Adopt - 14th Oct 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Bernanke's Mission Impossible- To Boost the Economy To Win the Election

Economics / US Economy Feb 27, 2008 - 01:07 AM GMT

By: Nadeem_Walayat

Economics

Best Financial Markets Analysis ArticleBen Bernanke's Mission Impossible is to deliver a favorable economic climate conducive towards a Republican election victory in November 2008,

The mission requires the US Fed to -

  • abandon the defense of the dollar,
  • to abandon the fight against inflation,
  • to prop up the ailing banking system by as much money as is required (money supply),

Forget the $140 billion bailout package, the Fed will throw as much as ten times that at the credit crisis so as to meet the requirements of the political establishment of having done everything within its power to deliver the most favorable election conditions possible, even going so far as to mail out several checks to every US tax payer, starting with announced $600 'tax rebate'.

The objective is to DELAY the impact of the recession until AFTER the November US election.

History Repeating - 1970's Stagflation

The 1970's stagflation was sparked by the then Fed Chairman Arthur Burns in 1972 printing money to ensure his master, the Republican President Nixon was re-elected. This was exacerbated by the oil crisis, and later in the decade was not helped by Jimmy Carters clueless appointment at the helm of the Fed which had the effect of making Nixon's inflation far worse. If Jimmy Carter had, had a competent Fed chairman other than Miller, then Ronald Reagon may never have made his curtain call. However the damage had been done and Carter was forced by the ' Wall Street establishment' to appoint Paul Volcker as the Fed Chairman, unfortunately under Jimmy Carter he had to serve two masters and hence the US remained in stagflation into the November 1980 election as the printing presses were running in an attempt to stave off the Democrats defeat. Jimmy Carter may even have stood a chance of winning had it not been for the Iranian Ayatollah's interference in the US election.

It was only after the 1980 election and Ronald Reagon's republican victory that the fight against inflation began. Paul Volcker seized the moment to push Interest rates up sharply which pushed the US and much of the world into a deep recession. There was plenty of time until the 1984 election by which time the money supply printing presses would once again flow at full speed to ensure Ronald Reagon's re-election. The price of which was a burgeoning debt mountain as the Great Communicator left the US with a national debt of $3 trillion up from $700 billion.

Do you see a pattern here yet ?

The role of the Fed is not primarily to fight inflation, but to deliver the conditions conducive towards an election win for the incumbent party. That role supercedes all others, as we are again witnessing today.

The implications are clear, that those anticipating that the US is already in a recession may find themselves scratching their heads all the way into the November election, as the already manipulated economic statistics increasingly paint a more favorable economic picture as the Fed continues to drive interest rates lower and flood the financial markets with as much liquidity as the banks require to stay afloat.

Even the US housing market may find a brief respite, by amazingly clocking up several months of rising prices this summer with housing market consensus consequences shifting towards a potential housing bottom. However the downtrend is expected to re-assert itself following the US election.

What if the Fed Succeeds and the US Avoids Recession 2008 ?

Then whoever wins the November election, (which at this time strongly favors a Democrat) will let the Fed do its job of priming the US economy for the NEXT elections in 2010 (mid-term) and the presidential election in 2012. The strategy presented will be clear for immediate sharp economic pain with Fed policy going into reverse on interest rates, much as Paul Volcker acted following Ronald Reagon's election in 1980. Interest rates will be raised sharply and the US and much of the western world will enter into a recession with the objective of eliminating inflation.

However contrary to many analysts, I don't see today's situation quite on the same scale as the 1970's STAGFLATION which was left to fester for some 8 years and thus subsequently required a much harsher response than today's INFLATION requires, therefore there interest rates are not expected to be hiked to anywhere near the levels seen during the early 1980's.

What if the Fed Fails and there is a Recession ?

Then the Democrats will win, and the republicans will be blamed for the recession during 2008-2009, as the Democrats subsequently take the credit for defeating inflation during 2009 and the subsequent years of economic growth.

Outlook for the Commodities Bull Market

Commodity Bulls may find that their bubbles are shortly about to be burst. As the worlds central banks having followed the US Fed into inflation will follow the US Fed into its fight AGAINST inflation. The Emerging markets will undoubtedly continue to demand commodities at an ever faster pace and therefore any decline would suggest to be a temporary, perhaps a bear market spanning between 12 to 18 months rather than the 20 years of deflation that we saw following the 1980's peak. The market tends to act ahead of the curve, so despite rising inflation into the US election, we may actually see a peak in commodities much sooner than November 2008.

Outlook for the Bond Markets.

Sharply higher interest rates implies sharply lower bond prices, at least in the initial phase as it will take time for inflation to leave the statistics from the surge going into November 2008.

Outlook for Stock Markets

The implication of a delayed recession suggests that stock prices will rise as the economic news coupled with the intention of the central banks money supply printing presses running at full stream with ever larger bail out packages announced to support economic activity and consumer spending. This in an atmosphere for the expectations of an imminent recession will be taken as bullish news for a quarter or two at least. Again the hangover of which will follow the November election as the delayed recession starts to bite deep into corporate earnings during 2009.

By Nadeem Walayat

Copyright © 2005-08 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 20 years experience of trading, analysing and forecasting the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 120 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Attention Editors and Publishers! - You have permission to republish THIS article if published in its entirety, including attribution to the author and links back to the http://www.marketoracle.co.uk . Please send an email to republish@marketoracle.co.uk, to include a link to the published article.

Nadeem Walayat Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Gary Allen
03 Mar 08, 21:24
This will not work..

What are people thinking here? I mean throwing money into the ecommy that is already down, why? Because of a war we are spending Billions of dollars on. Whoever wins the election for 2009 has a big task to boost this ecommy back. Giving people money free from the Goverment will not help. Presdent Bush is doing just that; it seems to me he thinks giving people 600-1,300 dollars for free people will spend this money. I'm sorry to tell you this will not help, people will use credit cards and save the money. Whoever is in Washigton,DC in 2009 needs to bring home the troops and cut the National spending so Education, Poor people and other things that are effecting the United States can be sloved. In closing, I would like to add that United States needs to take of problems here than work on other countries.


Dominic
04 Mar 08, 07:51
War spending is irrelevent

The US spends more money on medicaid and medicare than the occupation of Iraq and Afghanistan.

Only slightly more, but more.

Not that I think this will work, but that doesnt make "no war" a viable arguement


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules