Tuesday, August 9, 2011

America's Sliding Economy: What can the Federal Reserve Really Do?

While it is very rare that I post twice in one day, I noticed that the mainstream media is now questioning whether the Federal Reserve should or could step into the stock market to stabilize the market's steep downward slide.  The answer: according to James Bullard, President and CEO of the St. Louis Federal Reserve Bank, three short months of QE2 had already fixed the problems facing the American economy way back in February 2011.

On February 24th, Mr. Bullard gave a speech entitled "Quantitative Easing, Global Inflation and Commodity Standards" to the Bowling Green Area Chamber of Commerce.  In his speech, he acts as head cheerleader for Mr. Bernanke's QE2 program and states that:

"...(quantitative easing) is an effective tool when the policy rate is near zero..."

As proof of the success of the program which was announced by the Federal Open Market Committee in November 2010, he entertained his audience with the following slide:

That slide was soon followed by this slide:

What was next was, in fact, far different from what the St. Louis Federal Reserve Bank predicted despite the fact that signs were already in place that the negotiations over the debt and deficit ceiling issues were going to be fractious at best and that Moody's had warned the United States nearly a month and a half earlier in its January 13th, 2011 Aaa Sovereign Monitor that it had better get its house of cards in order by stating that:

"...the outlook for near-term stabilization of US government debt ratios is not promising..."

Apparently, central bankers really are not psychic despite their protestations to the contrary.  They do, however, seem to have an uncanny ability to ignore the data that doesn't fit their predictive economic models.  What is truly unnerving is that our future and the livelihood of our children lies in the hands of central bankers around the world.

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