Arrogance of the Federal Reserve, Bernanke and inflation, Bernanke gives the finger, How long does it take for inflation to start, Is QE 3 a good thing, Milton Friedman on the Federal Reserve, Perfect Economic Storm, What is wrong with a gold standard
The Federal Reserve has a had its hand in nearly every major downturn over the last hundred years. With such a record one would think they would have learned to be more cautious. Unfortunately it seems the current holder of the Fed Chairman’s seat seems to want to continue the Fed’s proud tradition of creating monetary havoc.
Ben Bernanke this last week gave Wall Street a present in the form of QE 3, a present that is likely to come at a high cost to main street America. Already the latest magic cash binge is having an effect. The credit rating agency Egan-Jones downgraded the U.S. from an already embarrassing AA to AA- based purely on the likelihood the Federal Reserve’s action is going to do far more harm then good. Also as if on que the dollar started falling around the world, a fact that is sure to start hitting Americans in their pocketbooks sooner than later.
The fact is even Bernanke knows his high risk move will be of limited economic benefit at best. Meant to stir up a short term perception of economic growth as much as stimulate it QE 3’s long term effects are likely to be disastrous. A fact that is reflected not only in the downgrade but the nearly instantaneous rise in the price of gold. The reality is now more then ever the long term U.S. economic outlook is not looking good. With the free world’s economic engine not likely to be pulling its weight anytime soon even the European Central Bank (ECB) sees recession as inevitable. It seems the only thing likely to improve as a result of the chairman’s actions is Obama’s reelection prospects and by default the likelihood of Bernanke keeping his job.
It should be noted that Ben is not alone, he is following in the footsteps of many others at the Fed whose actions have only made matters worse. From the deflation that kicked off the Great Depression to the near back to back tech and housing bubbles the Fed has shown a knack for exasperating and creating economic disasters. Originally established to prevent economic up and downs it has instead overseen the greatest economic fluctuations in U.S. history. In truth, one would be hard press to find an institution with as abysmal record as the Federal Reserve (something the late Milton Friedman was always quick to point out). This latest action is unlikely to interrupt this fine tradition.
Inflation can take eighteen months to three years to fully develop which means the consequences of the last rounds of quantitative folly are yet to be felt. Unfortunately this latest round of nearly unlimited “stimulus” is likely to just add to the already developing stagflation. It seems the Fed policies along with the President’s are combining to create a perfect storm. An economic hurricane powered by out of control regulatory agencies, taxageddon being still in the cards, a so called fiscal cliff around the corner, a debt that has moved from being ridiculous to the realm of the absurd, ObamaCare and with Federal Reserve initiated stagflation creeping up the rear.
With all that is happening one has to ask what else could go wrong? The answer unfortunately is all of these coming to roost at the same time as America faces unprecedented challenges abroad.
It would be nice if the Federal Reserve would learn to stop playing God with the economy while insanely ignoring its own record. Its policies have added instability, destroyed savings, discouraged real investment and undermined future development. For those in or close to retirement the hit from their inflationary policies will be devastating. The real tragedy is even if the Fed comes to its senses or Bernanke is fired (the second will probably have to happen before the first) much of the damage is done. Inflation is slow to develop and hard to stop. Even counteracting takes time and is fraught with the danger of over correction. Despite what Obama’s economic advisers are saying it cannot be turned on and off like a spigot.
The Noble Prize winning Milton Friedman suggested the Federal Reserve be abolished and replaced with a regulatory machine meant to create a stable as possible monetary system. The Austrian School economists long to abolish it and return the U.S. to the gold standard. Friedman’s idea is is probably the more practical of the two (the inability of gold supplies to keep up with economic growth was one of the main causes of recessions and depressions in nineteenth century America) but either would be preferable to what we have today.
The reality is the Federal Reserve is a failed experiment left over from a naive time in history when men thought planning would solve all the world’s problems. Unfortunately, despite all evidence to the contrary, there are many that still do.
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