Advertise | Bookmark | Contact Us | E-Mail List |  | Update Page | UraniumSeek.com 

Commentary : Gold Review : Markets : News Wire : Quotes : Silver : Stocks - Main Page 

 GoldSeek.com >> News >> Story  Disclaimer 
 
Latest Headlines

Gold Seeker Closing Report: Gold and Silver End Slightly Lower
By: Chris Mullen, Gold Seeker Report

Are You Ready For The Next Rally?
By: Craig Hemke

Long Term Patterns in Stocks, Gold and Crude
By: Gary Christenson

Exploration Update: Golden Arrow’s Pescado Project
By: Nicholas LePan, SilverSeek.com

GoldSeek Radio Nugget: Charles Hughes Smith and Chris Waltzek
By: radio.GoldSeek.com

Strap Yourself In - We Are About To See Some Big Moves In Metals
By: Avi Gilburt

Visit the Top Blockchain and Cryptocurrency Power Hubs of the World
By: Frank Holmes

Gold’s Upside Target
By: Przemyslaw Radomski, CFA

Dollar Crisis
By: Gary Savage

What Gold Needs to Do Now
By: Rick Ackerman

 
Search

GoldSeek Web

 
Will the Fed be able to fight the next recession?


By: Steve Saville, The Speculative Investor

 -- Published: Tuesday, 27 September 2016 | Print  | Disqus 

If you are asking the above question then your understanding of economics is sadly lacking or you are trying to mislead.

The Fed will never be completely out of monetary ammunition, because there is no limit to how much new money the central bank can create. The Fed will therefore always be capable of implementing some form of what Keynesians call stimulus. However, the so-called stimulus cannot possibly help the economy.

To believe that the central-bank monetisation of assets can help the economy you have to believe that an economy can benefit from counterfeiting. And to believe that the economy can be helped by lowering interest rates to below where they would otherwise be you have to believe that fake prices can be economically beneficial. In other words, you have to believe the impossible.

The reality is that the Fed never fights recession or helps the economy recover from recession, but it does cause recessions and gets in the way of genuine recovery after a recession occurs. For example, the monetary stimulus put in place by the Fed in response to the 2001 recession caused mal-investments — primarily associated with real estate — that were the seeds of the 2007-2009 recession. The price distortions caused by the Fed’s efforts to support the US economy from 2008 onward then firstly prevented a full liquidation of the mal-investments of 2002-2007 and then promoted a range of new mal-investments*. It’s therefore not a fluke that the most aggressive ‘monetary accommodation’ of the past 60 years occurred alongside the weakest post-recession recovery of the past 60 years. Moreover, the cause of the next recession will be the mal-investments stemming from the Fed’s earlier attempts to stimulate.

Unfortunately, if you have unswerving faith in a theoretical model that shows stronger real growth as the output following interest-rate cutting and/or money-pumping, then in response to economic weakness your conclusion will always be that interest-rate cutting and/or money-pumping is the appropriate course of action. And if the economy is still weak after such a course of action then your conclusion will naturally be that the same remedy must be applied with greater force.

For example, if cutting the interest rate to 1% isn’t followed by the expected strength then you will assume that the correct next step is to cut the interest rate to zero. If the expected growth still doesn’t appear then you will conclude that a negative interest rate is required, and if the economy stubbornly refuses to show sufficient vigor in response to a negative interest rate then your conclusion will be that the rate simply isn’t negative enough. And so on.

Whatever happens, the validity of the model that shows the economy being given a sustainable boost by central-bank-initiated monetary stimulus must never be questioned. After all, if doubts regarding the validity of the model were allowed to enter mainstream consciousness then people might start to ask: Should there be a central bank?

Circling back to the question posed at the top of this blog post, the question, itself, is a form of propaganda in that it presupposes the validity of the stimulus model (it presumes that the Fed is genuinely capable of fighting a recession, which it patently isn’t). Anyone who asks the question is therefore either a deliberate promoter of dangerous propaganda or a victim of it.

*Examples of the mal-investments promoted by the Fed’s money-pumping and interest-rate suppression during the past several years include the favouring by corporate America of stock buybacks over capital investment, the debt-funding of an unsustainable shale-oil boom, a generally greater amount of risk-taking by bond investors as part of a desperate effort to obtain a real yield above zero, the large-scale extension of credit to ‘subprime’ borrowers to artificially boost the sales of new cars, and the debt-funded investing in college degrees for which there is insufficient demand in the marketplace (a.k.a. the student loan scam).


| Digg This Article
 -- Published: Tuesday, 27 September 2016 | E-Mail  | Print  | Source: GoldSeek.com

comments powered by Disqus


Regular financial market forecasts and analyses are provided at our web site. We aren’t offering a free trial subscription at this time, but free samples of our work (excerpts from our regular commentaries) can be viewed here.

E-mail: Steve Saville



 



Increase Text SizeDecrease Text SizeE-mail Link of Current PagePrinter Friendly PageReturn to GoldSeek.com

 news.goldseek.com >> Story

E-mail Page  | Print  | Disclaimer 


© 1995 - 2017



GoldSeek.com Supports Kiva.org

© GoldSeek.com, Gold Seek LLC

The content on this site is protected by U.S. and international copyright laws and is the property of GoldSeek.com and/or the providers of the content under license. By "content" we mean any information, mode of expression, or other materials and services found on GoldSeek.com. This includes editorials, news, our writings, graphics, and any and all other features found on the site. Please contact us for any further information.

Live GoldSeek Visitor Map | Disclaimer

The views contained here may not represent the views of GoldSeek.com, its affiliates or advertisers. GoldSeek.com makes no representation, warranty or guarantee as to the accuracy or completeness of the information (including news, editorials, prices, statistics, analyses and the like) provided through its service. Any copying, reproduction and/or redistribution of any of the documents, data, content or materials contained on or within this website, without the express written consent of GoldSeek.com, is strictly prohibited. In no event shall GoldSeek.com or its affiliates be liable to any person for any decision made or action taken in reliance upon the information provided herein.