The Feeble FED of Fate

The Federal Reserve is now the topic of discussion upon the Stoa this afternoon.

I get the impression that many folks around the country and the world sort of gave a feeble, mixed, "yea" when Bernanke said that interest rates will be kept near zero and that he remained mum on QE3.

Businesses yawned, since they don't have a liquidity problem. The bond markets dropped, gold rose, the housing market fell, and the Fed really does not know what to do with itself. The stock market rallied, but only because they are interested in short term profits. Money getting injected into the economy will pass through the stock market via more than one route. They will get a slice. Of course they are happy. This does not mean that their happiness is good for the country, though.

People saved more than they spent the last six months, which is good for the country, but then everyone really cheered when people spent more money in July then the last July. People were spending again, the Fed trumpeted. People saved less, put more on credit, and consumed more.

Let's think back to what got us into this mess. Cheap credit, check. Easy lending, check. Out of control consumer spending, check. Debt ratios not sustainable by raises in income, check.

So now lets see what the Fed is really up to. Keeping lending rates near zero, check. Printing huge amounts of money to bail out banks who get in over their heads, check. Encouraging people to spend, check. Discouraging savings, check.

What is the deal here folks. Between Barney Frank and Dodd ginning up Freddie and Fannie, the Fed with their irresponsible printing, one might get the idea that they are simply trying to re-inflate a bubble that popped and splattered all over the world. Why re-inflate it? You think prices will not get unsustainable again?

The American people as a whole know that they can no longer just spend and borrow and hope the job will come through with a raise or bonus this year. They are saving up to buy the next purchase. They are fixing their homes and their cars rather than sell them and buy a new one. They are eating out less and spending less because they don't know what next week will bring.

Businesses are mostly wise to what is going on as well as they are hoarding cash and not hiring. Banks are failing as much because of the cost of compliance with the new regulations anymore as they are due to old fashioned failure.

The people know what is going on. The businesses know what is going on. The Feds and the government seem to no know what is going on. They create the mess and then feel that they are the only ones who can fix the mess...a mess they blame on "capitalism". The Fed created one bubble after another and blamed the bubble popped sector for the mess. Regulators step in and choke the sector to near-death and then demand that the sector hire more people.

For the good of the economy is something I have heard as well. Give me a break. A company is not going to hire workers out of charity. They are in the business to stay in business. This means earning more money then they generate in expenses. Sounds simple. Obama and Immelt demand that corporations are healthy enough to hire again, even as Immelt puts thousands out of work (lightbulbs) and shelters his income from Federal Corporate taxation.

The Fed needs to be dismantled, as all the other central banks were dismantled in our history. They had it right each time. Why do people think that they are immune to the evils of any centralized system, be it a bank or a government?

Live well.

--Zavost