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A Federal Reserve Without A Plan



August 10, 2011 – Comments (3) | RELATED TICKERS: DIA , XLF , IWM

When is the last time that the Federal Reserve said that they will keep rates low until 2013? This is certainly the most bizarre statement that we have ever heard from the central bank. Sure, the stock market likes low rates, however, when the Federal Reserve makes comments like this it starts to sound and look like Japan. The Japanese economy has gone nowhere in twenty years. Did the Federal Reserve just tell us that we are in stagflation? There is very little confidence coming from the Federal Reserve these days.

The stock markets have crumbled after every quantitative easing program. In 2010, the stock market plummeted lower after QE-1. That stock market decline lead to the famous Jackson Hole announcement that the central bank would implement another round of quantitative easing called QE-2. The one year anniversary of the last QE-2 announcement is coming upon us later this month. Will the Federal Reserve announce another stimulus program at the next Jackson Hole, Wyoming event? Many traders and investors believe that it is these stimulus programs (quantitative easing) that have actually lead to these declines in the stock market.

The stock market now depends on stimulus from artificial interest rates in order to inflate and trade higher. This is very obvious, simply look at all of the recessions that we have had over the past 10 years and you will see that easy money has been the quick fix to every problem. In other words, a weak dollar policy is the cure that the central banks prescribe. When the powers that be continually keep the U.S. Dollar weak it causes inflation in the world and actually taxes the U.S. consumer. All the goods that the U.S. consumer purchases becomes more expensive. People on fixed incomes especially feel the negative effects of the weaker U.S. Dollar Index.

Albert Einstein used to say that insanity is doing the same thing over and over expecting a different result. Well, it is now time to realize that the Federal Reserve and our elected officials may simply be insane. As far as we can see they continue to just do the same mistakes over and over. These same officials even put into power the same people that caused the problem in the first place. Oh well, what can we do? This is simply how the world functions when the Fed does not have a plan.

Nicholas Santiago

3 Comments – Post Your Own

#1) On August 10, 2011 at 11:10 AM, JaysRage (78.63) wrote:

I agree that this is an extremely odd proclamation.     It seems like the entire purpose was to just try and calm people down, rather than give reasonable economic interpretation and set policy accordingly.  

Either that, or the fed is convinced that the economy is in the crapper for at least another 2 years, so they feel confident committing to loose money policies during that span.  

While I agree, it is unprecedented to say that, and it counters the calming effect that the first interpretation would have had. 

It's just odd, overall.   I think the market just basically ignored it.

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#2) On August 10, 2011 at 11:36 AM, rfaramir (28.64) wrote:

It is extremely partisan. Period.

Ben wants to keep Barry in office, so he's doing all he can to prop up the stock market until the election is over, so people 'feel' like 'the economy' is doing well as measured by the Dow.

It's blatant, pitiful, and execrably wrong.

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#3) On August 10, 2011 at 11:39 AM, miteycasey (28.85) wrote:

He said it to calm things down more than anything.

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