Inside This Issue You Will Discover…

*** Giving Everyone What They Want
*** Foaming At The Mouth
*** Throwing Darts In A Blizzard
*** And More

Giving Everyone What They Want

Federal Reserve Chairman Ben S. Bernanke stood center stage on Wednesday, April 30th, and showed to the world that he’s a complete and utter buffoon.  Only, no one laughed.  For he did exactly what everyone wanted him to do…he acquiesced.  He cut the federal funds rate 25 basis points to 2 percent.

“Scrambling to shore up the faltering economy, the Federal Reserve cut interest rates to the lowest point in nearly four years Wednesday as the nation teetered on the edge of recession,” reports AP Economics Writer Jeannine Aversa.

“Chairman Ben Bernanke led a divided Fed, in an 8-2 vote, in slicing its key rate by one-quarter percentage point to 2 percent.”

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Apparently raging oil, gas and food prices, and a sagging dollar are of secondary concern.

Foaming At The Mouth

But, of course, the market’s a forward looking animal.  And since the 25 bps cut was already a near certainty…it was Bernanke’s statement following the rate cut that had the pack foaming at the mouth.

“The substantial easing of monetary policy to date ... should help to promote moderate growth over time and to mitigate risks to economic activity,” the Fed said.

“Recent information indicates that economic activity remains weak,” the Fed added.  “Household and business spending has been subdued, and labor markets have softened further.  Financial markets remain under considerable stress, and tight credit conditions and the deepening housing contraction are likely to weigh on economic growth over the next few quarters.”

Like a presidential campaign stump speech, we found the statement to be remarkably wearisome for its tedious ambivalence.  Which is it?  Is the economy recovering or weakening?  And will rates be cut further or not?

Economists at Moody’s can only guess…

“‘The Fed didn't completely shut the door on rate cuts but they closed it part way,’ said Mark Zandi, chief economist at Moody's Economy.com.  ‘I think the overall message was they've done a lot already to help the economy and think this will be enough.  But they stand ready to do more if that is needed.’”

And currency traders aren’t sure what to make of it, as reported by Reuters…

“‘The statement does not make it clear what’s the outlook for the next meeting.  The Fed was somewhat more dovish this time and they can easily go both ways from here,’ said Michael Woolfolk, senior currency strategist at the Bank of New York Mellon.

“‘People were expecting a clear sign that the next move would be a pause, but the statement doesn't make that clear.’”

Throwing Darts In A Blizzard

We imagine that Bernanke was purposely unclear because he doesn’t know what he’s going to do…but he thinks he knows best.  For that’s the very folly and conceit with price fixing of all kinds.

In this regard, it’s not in man’s power to properly set the price of money…just as it’s not in man’s power to set the boiling point of water – or to require the sun to come out at night.

Sure you can measure the boiling point of water – it’s 212 degrees F.  But you can’t change it.  Even if some government official passes a law that says water shall boil at 150 degrees F, it doesn’t matter, because nature – or God – has already decided that it’s 212 degrees F.

As for the price of money, it’s the market that ultimately determines the real rate of interest that should be charged.  When some government meddler blindly sets its price artificially low – below the rate of inflation – extraordinary and unintended consequences occur.

You get a mammoth dot com stock bubble…a mammoth housing bubble…120 per barrel oil…runaway food prices…$900 per ounce gold…and the whirlwind of destruction that government induced price distortions leave when they blow across the economy and the populace.

All because some Ivy League bozo thinks he’s smarter…that he knows better…when, at best, he’s throwing darts in a blizzard.

Sincerely,

M.N. Gordon
Great Depression Online

P.S.  When the Fed cuts rates, it further undermines the dollar.  We’re not happy about it.  But it’s a fact.  And it’s a fact that you can profit from.  Learn more about “The Gift That Keeps Giving: The Falling Dollar” here: The Gift That Keeps Giving: The Falling Dollar.