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Peter Schiff - The Fix Is In

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August 12, 2011 – Comments (4)

This week’s wild actions on Wall Street should serve as a stark reminder that few investors have any clue as to what is really going on beneath the surface of America’s troubled economy. But this week did bring startling clarity on at least one front. In its August policy statement the Federal Reserve took the highly unusual step of putting a specific time frame for the continuation of its near zero interest rate policy.

Moving past the previously uncertain pronouncements that they would “keep interest rates low for an extended period,” the Fed now tells us that rates will not budge from rock bottom for at least two years. Although the markets rallied on the news (at least for a few minutes) in reality the policy will inflict untold harm on the U.S. economy. The move was so dangerous and misguided that three members of the Fed’s Open Market Committee actually voted against it. This level of dissent within the Fed hasn’t been seen for years. 

Many economists have short-sightedly concluded that ultra low interest rates are a sure fire way to spur economic growth. The easier and cheaper it is to borrow, they argue, the more likely business and consumers are to spend. And because spending spurs growth, in their calculation, low rates are always good. But, as is typical, they have it backwards.

Full article

4 Comments – Post Your Own

#1) On August 12, 2011 at 6:17 PM, dcrednek (79.16) wrote:

I'm with Schiff on this subject.  Why are banks permitted to borrow from the Fed and then simply turn around and lend it back to the government at a 200-300 point spread?  Is the Fed simply trying to move more national debt into domestic hands and out of foreign portfolios?  I also agree with him that this declaration will deprive businesses of capital, which in turn will result in a no-growth economy, which is precisely what we don't need.  What's more, banks will not raise the rates on deposits because they don't really need them. They have a near no-cost source of deposits coming out of the federal government through the discount window.

Isn't this (or something near enough to it) what Japan has been doing for nearly two decades, with little or no positive result?

The US has a bounty of intellectual capital, but it appears to be allocated anywhere but at the Fed.  The board of governors are surely bright people, but this strategy is anything but that.

It's not going to be pretty if and when (more when than if I think) the government turns-on the printing presses to pay down the national debt. And when it happens inflation is going to hit us like a firestorm.

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#2) On August 13, 2011 at 11:37 AM, catoismymotor (39.02) wrote:

Thanks for the article and link. It was a good informative read. I just posted it to FB so all my friends can choose not to read it.

 

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#3) On August 13, 2011 at 11:41 AM, kdakota630 (29.50) wrote:

catoismymotor

LOL!  I know how you feel.

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#4) On August 13, 2011 at 11:31 PM, addikt06 (21.10) wrote:

I don't always agree with Schiff but I agree with him 100% here.

I think the Fed is not really in control anymore ... the banks are insolvent and we all know it... Fed can't hike interest rates to proper levels because that will create a depression like scenario. So they keep doing the wrong thing which is to further encourage speculation... we are basically Japan v 2.0. 

 

I feel particularly disgusted by the banks. First they have at least a 50% role in destroying the economy. Then they get bailed out by the tax payer AND they happily buy gov bonds at 2-3% while getting the same moeny from Fed at 0%. This is insanity.  

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