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Townhall
Finance...
The
Fed
Brought A Knife to a Gunfight
by Jeff
Carter
Over the
course of the past year, I have advocated the view that the Federal
Reserve is
out of bullets. All the central bankers of the world are out of
bullets. They
don’t have any ammo in their back pocket to reload.
The entire
EU is overwhelmed with government debt. Greece is running out of money
due to
entitlements, and France has turned socialist. Germany cannot save the
EU by
itself, and the entire region is spinning into recession. No doubt, it
will
have a hard landing.
China is
slowing. The EU is one of their better customers and can’t afford to
buy
anything anymore. Not only is the EU a problem, but internally they
have
misallocated assets creating artificial wealth. That inflated value
will have
to deflate, deleverage and drop in price. Somewhere, Jimmy Chanos is
smiling.
In the US,
the Federal Reserve has tried everything in its entire bucket list to
try and
help the economy. Quantitative and qualitative easing hasn’t helped.
It’s only
decreased the value of the dollar and made American portfolios look
better.
Everyone feels wealthier, but the reality is they aren’t. TALF, TARP
are both
failed programs. They kept the banks afloat, but there is no turnover
of the
money the Fed created. No velocity. Money gets printed and then sits on
bank
balance sheets.
After all
that failure, the Fed tried Operation Twist. Not seen since the early
sixties,
Operation Twist is where the Fed sells short term securities and buys
long term
securities. This artificially lowers long term rates, flattens the
yield curve
and is supposed to be stimulative for monetary policy. Operation Twist
failed.
The rumor
around market watchers now is that the Fed will engage a new round of
Quantitative Ease. QE3. It will fail too. Japan has tried to stimulate
its
economy for over two decades using central bank monetary policy. It
hasn’t
worked.
The Fed
really can’t do anything. It can just mind its p’s and q’s and watch.
If we
want to stimulate the economy, the only body that can really make
anything
happen is Congress. However, Democrats and Republicans are at odds over
both
economic and tax policy, so we will have to be like all Chicago Cubs
fans and
wait until next year for something to happen...
Read the
rest of the article at Townhall Finance
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