Archive for April, 2009
Can the Fed Tighten the Money Supply in Time?
Posted by Preston Poulter in Investing and Financial Doomsday on April 26th, 2009
Lately I’ve been reading opinions about the market that tell their readers not to be too worried about inflation. Sure, they’ll admit that expanding the money supply correlates sharply with inflation, but they tell me that Ben Bernanke will take all that liquidity out of the system when the time is right. I have no idea where they get this idea; Alan Greenspan certainly wasn’t able to contract the money supply after he inflated it to ward off recession. Do we really believe that Ben Bernanke is going to do any better?
One opinion I read indicated that mopping up inflated money supply. After all, all the Fed had done was monetized the government’s debt. Since that debt is held in the form of US Treasury bonds, it should be easy to contract the money supply again by simply selling the bonds. The author of this opinion was rather misinformed, because they did not seem to understand that when the Fed monetizes bonds, it does so with money that it yanks out of thin air. The money then enters the system by way of the bank. Read the rest of this entry »
Fed Sees No Recovery in 2009
Posted by Preston Poulter in Investing and Financial Doomsday on April 13th, 2009
Here’s a fun tidbit from our friends at the Federal Reserve, out economy is not going to be getting any better this year. When last they spoke (oh, gosh, must have been.. four weeks ago) they said that the best we could hope for would be an economic recovery in late 2009. Now they’ve since come out and said that we would see no recovery this year.
Hmmm. Well if that’s the case, why is the government spending all of this money to “stimulate” the economy and bail people out? Was that to speed us to a swift recovery? Now I understand that back before the days of the Fed, when downturns or banking panics would happen, that they might take a year or so to work themselves out. The Panic of 1907 took less than a year. The Panic of 1893 didn’t see the market bottom for more than a couple of years. But that was back in the economic dark ages. Back when our money was backed by gold and we didn’t have sage bureaucrats or wise central bankers ready to print money at the drop of a hat (roughly $13 trillion and counting according to Bloomberg) to bail everyone out. Why, wasn’t the whole reason for all of this stimulus and bailout so that we wouldn’t have to far a protracted economic downturn?
Well, that was the justification given for it anyway. Liquidation doesn’t work is what Ben Bernanke told us, it just makes things worse. So instead let’s bail out the troubled economic actors and get back on the road to a quick recovery. The Fed is now admitting that this recovery of there’s is not going to come quickly. In fact, in comparing the amount of time old style economic liquidations used to take compared to take, the post economic recoveries of the Fed era seem to take quite a bit longer. As I discuss in my book, when you compare the economic history of the pre-Federal Reserve era to what took place after the Fed, it’s pretty clear that we went from an era of frequent economic panics to infrequent economic collapses. That suggests that all the Fed is doing is to postpone an economic downturn until later, but at the cost of greatly adding to its length. Which isn’t really all that great of a service to society when you think about it? Read the rest of this entry »