Thursday, May 19, 2011

The Fed is all talk and no deeds!

 The Federal Reserve said last month that the economy is gradually improving and began discussing how it would reverse policies adopted during the recession that pumped billions of dollars into the economy.
Some members said the Fed might need to start boosting interest rates this year to guard against inflation. Any effort to tighten credit would lead to higher rates on some mortgages, credit cards and other consumer loans.
Fed policymakers didn't commit to taking any action at the April 26-27 meeting, according to minutes released Wednesday. But they agreed that if the economy continued its steady growth, the Fed would need to pull back on its massive stimulus programs and take steps to prevent consumer prices from getting out of control.
The officials generally agreed that the first step should be for the central bank to stop reinvesting money earned off its holdings of mortgages and Treasury securities. That's consistent with comments made by Federal Reserve Chairman Ben Bernanke at a news conference after the April 27 meeting. But that would have only a limited impact on the rates Americans pay on loans.

The Fed is playing a psychological game with the markets by trying to manipulate investors sentiments into dumping commodities in order to reduce the effects of its monetary inflation that have led to higher prices across the board ever since it began to engage in quantitative easing policies. Ben Bernanke is an archi-Keynesian who believes that increasing liquidity to stem the effect of deflation is the way to go. He and many economists surrounding him believe that the great  depression was caused by the then cautious federal reserve and, he intend not to repeat the same mistake of his predecessors. We conjecture however that such an understanding is utterly flawed because what the economy actually needs is a clearing mechanism that allows bad debts to be liquidated in order for the economy to be reset on a much sounder footing. The Fed and the government have to reduce spending and allow the zombies banks to actually go bankrupt thus clearing the field for a newer generation of cautious entrepreneur and investors. Ben bernanke recipe will eventually lead us to disaster by destroying the value of the dollar and spreading misery and poverty across the US and the entire world. Consequently, depending on how investor greet the Fed tightening rumors, we think that the market might eventually fall drastically around June; but, right around the fall, the Fed will eventually come up with a new plan to save the economy by engaging in another set quantitative easing policy. There is no way the the people at fed are ready to engage in a long term across the board tightening and deleveraging. The investor must therefore be careful not to fall for the what is nothing but a con game by the fed to knock down price inflation across the board for the short term.

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