Federal Reserve
The Federal Reserve it can be argued has done a great job of propping up the economy during the Great Recession with its easy money policies led by Quantitative Easing 1, 2 and 3. However, the growth in the stock market and the low interest rate on our ballooning debt is artificial as a result of the Fed's policies. Dialing back of their latest bond-buying program, is the finesse move confronting the Fed for the next five years. If the Fed moves too fast, it could cool the recovery. If it moves too slowly, it could fuel asset bubbles or excessive inflation. With the stock market booming since the election of Donald Trump, these fears are heightened.

U.S. Coronavirus Spread Invokes Heavy Government Intervention

from Bill Bonner's Diary,

The “war” against the C virus raged over the weekend.

Donald Trump invoked war powers to force major industries to manufacture ventilators and called the bug “the silent enemy.”

Meanwhile, another group races to Washington to join The Swamp critters, trying to get some of that $2 trillion worth of federal boondoggle spending.

But who’s the real enemy? Is it a molecule with a Facebook page? Is it the damage done by the virus… or by the feds’ heavy-handed financial reaction?

Over the last three decades, a bogus “stimulus” program impaired the economy’s immune system and created the biggest bubble in asset price history.

The feds will learn that not only can they get away with $2 trillion deficits… but also that the voters, the campaign donors, the cronies, the Deep State insiders – every Tom, Dick, and Harry will demand it. Bailed-out businesses will not learn to save capital for a rainy day. Instead, they will pass out the loot to managers and shareholders, becoming even weaker. Households, too, will find the free money appealing; they will come to expect it. In New Jersey, just to take one example, the additional emergency federal contribution to unemployment compensation will bring the hourly rate to a minimum of $32 an hour. Many people will make more money collecting unemployment than actually working.

Things blew up on September 17, 2019 when the interest rate on short-term loans spiked from 2% to 10% in a matter of minutes.The Fed turned on its printing press and began bailing out the government. It couldn’t let the government collapse financially. That was the moment I was sure we were about to get inflation.

We’ve seen this before… short-term solutions turn into bigger, long-term problems. Emergency measures during a crisis – like the ultra-low interest rates of 2009 – soon become permanent. The problem in 2008 was mortgage debt. The feds responded with more debt – particularly corporate and government debt. This made the economy more fragile than ever, leading to today’s crisis. This time, they follow the same protocol, only in triplicate or quadruplicate. The amount of new money (and debt) going into the system is staggering. More fake money can create more fake wealth. But it can’t create real wealth. We saw that over the last 10 years. The feds’ fake money drove up stock prices 300%. But real economic growth was the lowest for any recovery on record.

That’s why we watch the Dow-to-Gold ratio. It will tell the tale… not precisely, and not immediately… but eventually. Stock prices may rise, but real values won’t. Look, the feds are in an Inflate-or-Die trap. They’re fighting it with the only thing they have: more and more inflation. They’ll add more and more fake-money firepower… until the whole shebang blows to kingdom come.

Today, the government intends to default on the debt… by inflating it away.

...after WWII, ..., while the government was deeply in debt too, it fully intended to pay the debt back. ...the feds were backing off… letting the free economy provide goods and services to young families. Mr. Bohanon again:When the war ended…the command economy was dismantled. By the end of 1946, direct government allocation of resources—by edict, price controls, and rationing schemes—was essentially eliminated. Tax rates were cut as well, although they remained high by contemporary standards.By any measure, the economy became less subject to government direction. Despite the pessimism of professional economists, resources that previously would have been directed to the production of war goods quickly found their way to other uses… the elimination of wartime economic controls coincided with one of the largest periods of economic growth in U.S. history.Today… it is just the opposite. And the real war – on a free economy – is just beginning.

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