Friday, November 12, 2010

Beware the Fed Tide

From Prudent Bear.

"The Fed is now pledging to defeat this recession using any monetary means necessary. Unfortunately, their embrace threatens to smother our economy.

Despite its paternalistic rhetoric, the Fed really has just a few simple goals: allow for the perpetual expansion of the federal deficit, push up stock prices to create the illusion of wealth, and stimulate consumer spending. To do this, the Fed will hold interest rates near zero for the foreseeable future, and will buy some $600 billion of Treasury debt by April of next year. Per capita, the commitment to quantitative easing comes to almost $2,000 per American. What's more, if this program fails to pull the economy out of recession, the Fed stands ready to up the ante. This amounts to little more than gambling; but instead of using their own accounts, the central bankers are wagering the nation's savings."

It isn't just Wall St. we have to worry about! The Fed is THE NATION'S Wall

"Now, by monetizing almost the entire federal deficit through QE-2, the Fed hopes to give Congress the breathing room to enact reforms before skyrocketing interest rates bankrupt the Treasury. Meanwhile, the central bank hopes the expected inflationary consequences will be nullified by a resulting broad-based recovery. But an economist as knowledgeable and experienced as Chairman Bernanke should know by now that any real economic revival will come from private industry, not government. The money printed by the Fed will indeed flow into the economy, where it will push up asset prices in many sectors. Already commodity prices are soaring. But inflation cannot create real growth.

What the Fed is doing, essentially, is forcing consumers to spend their cash hoardings. Until the economic and financial policies of the government change dramatically, those who are tempted to invest their savings within the United States risk increasing regime uncertainty. So, much of our domestic capital is flowing into hard assets and overseas markets.

This will do nothing to help the festering wounds underlying the U.S. economy."

It's their attempt to flush frugalites out of the woodwork and into the general consumerati. They think we're not pulling out weight when it comes to spending.

"In the turmoil that lies ahead, America's saving grace could have been a reliable currency to brace us up. Yes, our legs are weak, but at least we could have had firm ground on which to walk. The present governors of Federal Reserve, however, would prefer to prop up the bloated and hobbled bubble-era structures in the hopes that a deus ex machina will save the day. Unfortunately, while they're waiting for a miracle, we'll all be left swimming against a tide of new dollars."

What do you think the life preservers for the little guys are against this tide of new dollars? Frugal living and savings--precisely the thing they want us to be rid of.


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