To paraphrase Ronald Reagan, “there they go again!” The Federal Reserve is finding yet another way to try to goose the economy; this time by throwing everything it has at the market.
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Things like unlimited leasing, low to no rates until 2015, and as much as $40 billion in mortgage-backed securities purchases each month; just to name a few. Market players were not surprised. They were absolutely astonished. Stocks went down, then up as players absorbed the news.
Silver spiked, as did gold and treasury yields. It was all confusing at best. The federal government has so far issued ten rate cuts which began on September 18, 2007. Following that, they’ve repeated rounds of bond purchases, or, in other words, of treasuries and private market bonds. A promise to keep rates low and a comically complicated operation twist topped it all off.
Despite the truth of Federal Reserve Chairman Ben Bernanke’s statement that he believes his efforts have paid off with the creation of two million jobs. It pales in comparison to the numbers of jobless people; totaling to a staggering 12.5 million. Unemployment has been above 8% for forty-three months, with economic growth incapable of cracking even a 2% increase.
That isn’t because the economy is weak because monetary policy isn’t loose enough; it’s plenty loose. Mortgage rates are at 3.5%, a considerable difference from a prime rate of 3.25%.
The federal government has bent over backwards. Yet, companies aren’t hiring and consumers aren’t spending. This is because Washington is frankly broken. A huge tax burden looms as of December 31st, and congress cannot pass a budget. Republicans and Democrats are at an impasse.
Now, the federal government promises a blank check, printing unlimited money to pull us out of the ditch. How will they ever unwind all this stimulus? Who will pay? What will be the unintended and inevitable consequences?
Economist John Taylor recently wrote that sky-high inflation will be the ultimate result of the federal government’s moves, before today’s action.
And, almost undoubtedly, he sure seems right.