For five years, the Fed has managed to fool most of the people.
There were some of us who openly criticized the Fed’s policies, noting among other things that:
1) QE had an abysmal track record as far as generating GDP growth or job creation were concerned (see both Japan and the UK).
2) The Fed repeatedly lied about the purpose of its policies (they were aimed at propping up the large insolvent banks, not helping Main Street).
3) The Fed’s belief in the wealth effect (that higher asset prices would lead to greater consumer spending) was misguided if not outright delusional.
For five years, those of us who made such criticisms were in the minority. However, that tide is now turning. We are seeing an increased number of mainstream media outlets run stories that are outright critical of the Fed’s policies.
Here is a spate of headlines from such articles:
Have central banks been breaking the law?
The Fed in Danger
Should Janet Yellen Be Giving Us Stock Picks?
The political tide is beginning to turn against the Fed. After five years of the Fed being completely wrong about everything (remember the “growth is just around the corner” meme) while simultaneously eviscerating the middle class and increasing wealth inequality, even the mainstream press is catching on that something isn’t right.
After all, how can you spend over $4 trillion and still be talking about how fragile the economic recovery is? We’re now five years into this alleged “recovery.” Based on a normal business cycle alone the economy should be roaring forward rather than posting the pathetic -2.9% growth rate of 1Q14.
Indeed, even the Fed’s underlings are now pointing out what an abysmal job the Fed has done. According got the Fed’s OWN RESEARCH unemployment is a mere 0.13% lower courtesy of FIVE YEARS of extraordinary monetary measures
Without the Fed and its low interest rates, the jobless rate would have been higher these past few years – pretty much all economists agree on that.
But how much worse would things have been?
A paper written by two economists for the Atlanta Fed takes a stab at answering that question.
Leaving aside the fuzzy math of economics, the researchers conclude the four years of easy money lowered the unemployment rate by .13 percentage points.
The national rate in December 2013 was 6.7 percent. So, if the Fed had not been so aggressive, the rate would have been 0.13 points higher — 6.83 percent. Not dramatic (unless you are one of the several thousand people who kept your job as a result).
But if the Fed had done nothing at all? That would have mean an unemployment rate a full 1 percent higher: 7.7 percent in December.
The fact that this article is not written sarcastically is astounding. The Fed spent over $4 trillion and it only lowered unemployment by 0.13%. How many millions of dollars per job saved is that?
This is the reality of Central Planning: a handful of bureaucrats can never accurately manage, let alone improve something as large and complicated as a national economy.
History is replete with the total failure of Central Planning. Whether one look to China or the USSR or the US today, Central Planning has never successfully worked. It creates the illusion of stability in the short-term, but eventually the truth comes out: that it is a TERRIBLE means of deploying capital (both human or monetary).
The Fed’s failures are just the latest example. And by the look of things, the world is beginning to catch on. Now it’s simply a question of waiting for stocks to do the same.
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Phoenix Capital Research