There is no recovery underway except in the minds of a few myopic economists and a Geithner-ridden Obama Administration. Though it desperately wished to avoid doing so, the Federal Reserve has been forced to twig to this reality. It has tried all the old style ways of getting the economy back on its feet, most notably lowering the fed funds rate to virtually zero, all to no effect.
It’s latest panic move to rouge the economic corpse involves pumping $600 billion over the next eight months into the economy by buying its own bonds. Such an infusion could sensibly (if sense actually played a part in this fear spasm) have been administered by playing this money-for-bonds game with the Social Security Trust, thereby putting phony money it is creating out of whole clothe into a phony trust created years back by one of the biggest phonies in American financial history, Alan Greenspan.
This desperate panic approach would have generated inflation, true. But at least it would give an immediate huge boost to a failing economy by allowing a Payroll Tax holiday that puts cash into the hands of every working American and every business that could then hire more Americans.
Ah, but instead of this kick start approach, the Fed is pouring its $600 billion into bond purchases at banks. These institutions, recent history has shown, will not then turn around and lend it out to individuals and businesses, Why should they?
Why do such an economy boosting thing when banks can a) vault the money to improve their balance sheets and thereby boost their share price and the size of managers’ bonuses, or b) use the money to buy back shares of their own stock and thereby raise the prices of said stock, or c) simply use this latest gift from Sam to pump up the stock market still further?
The huge jump in stock prices today (the Dow rose 220 points) illustrates where banks will likely sink most of this cash.
So the Fed’s latest great adventure in fiscal policy will have very little positive good for anyone not in the banking or stock trading business. Which is not to say, alas, that it won’t have very unpleasant effects for the rest of us.
The price of gold today soared an astonishing $54 an ounce because the U.S. dollar, thanks to actions like this one from the Fed, is being turned into fireplace kindling. And while a lower dollar may help boost U.S. exports, it also makes goods imported from abroad (which is practically everything these days) more expensive. Oil prices also shot up today, more than $2 a barrel, because oil is priced in dollars.
What all this means is that while even larger mega-bonuses on Wall Street will be made possible by the Fed’s latest panic spasm, inflation for the rest of us will increase sharply. In the price of most imports. In the price of driving. And in the price of heating oil — just in time for winter.
How do we fire these Fed guys? All suggestions welcome.
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