Bernanke is at it again. His printing press is at work to create another 600 billion dollars. Bernanke declared the Economy needs it. The rationale is that if the government has more money coming from the FED, they can spend it and this Keynesian spending can jump start the economy. The assumption is that this will help us avoid a double dip recession. But is it really that easy? Afterall, if printing money was the answer, why do we not simply print it non-stop? Why did we not print it before the 2008 crash? Robert Prechter’s Conquer The Crash reveals whether the Fed really can save the US economy.
Since its creation in 1913, the primary intended role of the U.S. Federal Reserve Bank has been that of protector. In theory, the central bank was bestowed with the power to shape monetary policy in a way that would keep both booms and busts in check. The two main tools at its disposal – interest rates and money creation – would provide a “ceiling of normalcy” above expansions AND a “net of safety” below contractions.
To this day, the financial mainstream holds great faith in the Fed’s ability to fulfill its save-the-day duties – as these recent news items make plain:
- “Why Raising Fed Funds Rate Is Positive For Equities.” (Seeking Alpha)
- “Fed’s Moves Lift All Asset Classes.” (Associated Press)
- “US Stocks Erasing Losses: The aggressive moves of the Fed have been an important driver for the stabilization of stock prices.” (Bloomberg)
But of all the variables the Fed creators took into account, there’s one glaring factor they neglected to consider: Namely, it cannot force consumers to spend, creditors to lend, or businesses to borrow. The events of 2007-2009 “credit crunch” and the subsequent “Great Recession” made that obvious. Remember how the government was upset at banks for sitting on the bailout funds instead of lending them out to consumers? And consumers weren’t exactly lining up on the street to get a loan, either.
The Fed’s inability to change social mood is the central theme in Chapter 13 of EWI President Bob Prechter’s NY Times business bestseller book Conquer the Crash. There, Prechter describes the Fed’s strategy of lowering the federal funds rate to stimulate spending to be as effective as “pushing on a string.”Writes Bob:
“The primary basis for today’s belief in perpetual prosperity and inflation with an occasional recession is what I call the ‘Potent Directors Fallacy.’ It is nearly impossible to find a treatise on macroeconomics today that does not assert or assume that the Federal Reserve Board has learned to control both our money and our economy. Many believe that it also possesses the immense power to manipulate the stock market. The very idea that it can do these things is false.”
2008 crash happened despite FED intervention to the economy. Since then nothing has been fixed. We are doing more of the same that brought us the crash. Will Keynesian spending stop another economic downturn? Have we really found the magic bullet to kill the beast? Or is the FED intervention to the free markets planting the seeds of a misaligned economy with misallocated resources that will eventually collapse?
So begins one of the most groundbreaking studies into the very real INABILITY of the Fed to defeat the great bears of economic declines, or to feed the great bulls of economic vigor.
The best part is, you can read Chapter 13 of Conquer the Crash in its entirety FREE via a Club EWI resource “You Can Survive And Prosper In A Deflationary Depression.” The free report also includes SEVEN other chapters of Conquer the Crash that shed equal light on some of the most misleading notions of mainstream economic wisdom.