The Fed will never bring about a recovery

Jun 5, 2013

Baltimore, Maryland

Want to know why Bernanke won't stop QE & ZIRP? Because they don't work.


    Don't worry about rising rates, say legendary bond investors Jeffrey Gundlach and Dan Fuss.

    Doubleline Capital's Gundlach and Loomis Sayles' Fuss say the recent rally in yields is unlikely to continue, thanks to the Fed.

    Both say the Federal Reserve will make sure that any rise in rates will be slow and controlled. Gundlach and Fuss said that the consequences for global markets and the economy will be dire if the central bank fails.

    "People have been saying that the Fed thinks the economy is self sustaining, and that means lack of support for bonds," said Gundlach. "But the whole structure of the financial markets has been balanced on top of low interest rates."

Yes, dear reader, a few years ago, it would have seemed absurd and/or criminal. Now it seems indispensable. The Fed lends money below the rate of consumer price inflation ...and supports the banks and speculators with $85 billion per month of additional money.

How we delivered double, triple and even quadruple digit returns...

For years, many amongst you have asked us how we pick our stock recommendations...

Recommendations that have delivered double, triple and at times even quadruple digit returns!

However, our stock-picking process has been our secret and no one outside our research team had access to it... Till Now!

Yes, this is a rare opportunity to learn how we pick our stock recommendations, straight from our own research team.

There are thousands who would want to learn this... But there are Limited Seats Only!

So, click here for full details... and act now...

And now, the whole economy depends on it.

But ZIRP and QE are quack remedies. They're like bloodletting...which actually makes the patient worse and prevents him from getting better. Since QE & ZIRP don't work, the economy doesn't recover...and so it needs more 'help' from the Fed. Bloomberg reports:

    Surprise Factory Downturn Holds Back U.S. Growth: Economy

    Manufacturing (NAPMPMI) in the U.S. unexpectedly shrank in May at the fastest pace in four years, showing slowdowns in business and government spending are holding back the world's largest economy.

    The Institute for Supply Management's factory index fell to 49, the lowest reading since June 2009, from the prior month's 50.7, the Tempe, Arizona- based group's report showed today. Fifty is the dividing line between growth and contraction. The median forecast of 81 economists surveyed by Bloomberg was 51.

    "Manufacturing is really stymied by slow corporate spending and government spending cutbacks," said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, who was the only analyst in the Bloomberg survey to correctly project the drop in the index. "Manufacturing will grow at a modest pace this year" although it "is unlikely to accelerate in coming months," LeBas said. "This is part of the slower expansion we'll have in the second quarter."

As we keep saying, the Fed has not, is not, and will not ever bring about a recovery. The recovery will happen on its own...when the economy is good and ready. And not a minute before.

All the Fed can do is to retard the process of depriving small and medium businesses of the real savings (credit) they shifting resources from productive businesses to government and big zombie corporations making saving encouraging speculation rather than genuine capital formation and long-term investment...and by increasing the total amount of debt in an already debt-drenched society.

None of this helps a recovery. In fact, it slows it down. It makes the economy weaker... Which is just great from the Fed's perspective. If the economy did recover - even a little - inflation and interest rates would rise.

And then what? Then, as one central bank governor put it, the economy that came to depend on wild turkey would go cold turkey. It wouldn't be very pleasant. The Fed couldn't keep going with zero interest rates and bond buying - not with the CPI going up. It would have to cease and desist.

Mr. Bernanke & Co. would be stuck, trapped between the Scylla of a collapsing economy and the Charybdis of out-of-control inflation. Their meddles would begin to look like big mistakes.

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

Disclaimer: The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

Recent Articles

A New Infrastructure Boom March 26, 2019
Selva Freigedo talks about the potential in 5G network and how it could transform the way we communicate.
A 40 Somethings Guide to YouTube Hits March 20, 2019
Vivek dwells into a new YouTube phenomenon.
As the Economy Slows Down, Maruti and Two-Wheeler Companies Cut Production March 19, 2019
The country's largest car maker has cut production by more than a fourth.
In Supporting Demonetisation, RBI Behaved Like an Old Uncle Not Willing to Take a Stand March 13, 2019
The minutes of the meeting of the RBI Board which happened before demonetisation have been released.

Equitymaster requests your view! Post a comment on "The Fed will never bring about a recovery". Click here!