Fed’s Schizophrenia (a mental disorder characterized by a breakdown of thought processes) seems to have the unprofessional world in a tailspin where the talking heads are talking to themselves. The Federal Reserve shocked the media and the typical market investor when it announced that it would not taper its $85 billion bond buying program. I explained that it was normal strategic behavior for the Fed to test out ideas to see how the marketplace will take such a change in policy. The last thing the Fed wants is to be blamed for creating some major financial event and as such they ALWAYS error on the side of caution. Since that statement, the Fed has allowed members to speak publicly yielding the impression that the Fed is a house deeply divided. Since Mr. Bernanke’s press conference on September 18th, four Fed governors have given their own opinion on whether the Fed should extend their bond buying program and continue to provide additional stimulus to the economy. This is part of a strategic move and a real first. They are trying to keep the market cautious for they know they are not actually in control of anything.
The market reacted positively to Bernanke’s comments, and then afterwards James Bullard unsettled the market by expressing his take on the decision. The Federal Reserve Bank of St. Louis President suggested that the decision to continue the purchasing program “was a borderline decision” after “weaker data came in,” and that some data change could make the committee be comfortable with a small taper in October.
So what direction is the Federal Reserve moving with respect to monetary policy now? Why would an easy money policy need to be extended especially after instructing the market for months that monetary stimulus would be removed slowly over the next nine month period? Bernanke, in his press conference, said that despite growth proceeding at a moderate pace, “federal fiscal policy continues to be an important restraint on growth and a source of downside risk.” Could the FOMC be providing easy money in an effort to preempt the impact of the debt ceiling debate on the US economy? This is a very plausible reality because an increase in interest rates would increase the deficit and that would cause even greater problems in negotiation.
The problem the Fed has is that any increase in interest rates will increase the deficit. The Fed has followed this idea of pumping in liquidity to “stimulate” the economy during a decline ever since the Great Depression. However, the Fed cannot be truly independent nor control any aspect of the economy when the federal government is the biggest borrower. Volcker raised rates to fight inflation into 1981 and successfully sent the US National Debt from $1 trill to $8 trillion in a decade with rates as insane as 17%.
The Fed has no power to control the economy because it has no power over the fiscal budget of Congress. Then Congress assumes it is the Fed’s job to sterilize its reckless spending and thus we have a monetary system that CANNOT be controlled by anyone with governments perpetually borrowing and never paying anything back at any time. There is simple no possible way this monetary system will survive. It will collapse because there is nobody even capable of controlling it and this is yet another reason why I say you will PRAY for one of those conspiracy theories that the Rothschilds or someone else is really in control. IMPOSSIBLE!!!!!!!
This is far worse than anyone is prepared to admit. The entire government is just a court jester dancing to their own music. It is the equivalent of saying there is no God and you are on your own for nobody is watching over you. This is what we REALLY face in the years ahead as the entire system will simply implode from fiscal irresponsibility. You cannot elect people with no comprehension of the financial markets to run government and you cannot appoint academics to run central banks without practical trading experience. This is one giant joke than lacks a funny punch line.