Can the FED retreat?

A little over a week ago, the release of the minutes of the last FOMC meeting helped send equities and commodities plunging. Particularly hard hit were the gold mining stocks. First reports were that the BIS was responsible for this latest takedown of the gold price.

In the present post, I would like to examine the broader implications of these events.

Ever since the events of 2008 Sep, the world has been experiencing a fiscal and economic downturn. It began with the decision of the FOMC to switch the accounting system used by the banks (the so-called mark to market). This meant that banks could no longer use their formulas for valuing assets such as real estate or mortgages, but had to use the actual market value. Since, real estate values took a hit because of the sub prime loans, a number of banks were suddenly in trouble.

I managed to find the evidence of a perpetrated plunge in the money velocity and GDP which sent Barak Hussein Obama to the White House (see my July 30, 2009 post). The moves by the FOMC initiated a massive deleveraging and deflation. Ever since that time, the Obama regime has been raising govt spending and trying to force taxes upward. The resultant deficit is being financed by increasing the National Debt.

The FED responded by reducing interest rates and trying to stimulate the economy via increasing the money supply (QE1,2,3 and 4). But, extremely low interest rates are harmful, so the FED has to retreat one of these days, but can it?

Part of the effect of increasing the money supply is an increase in the Stock Market. This increase is supposed to stimulate the economy. And every time the FOMC breathes a hint of retreating from this policy, the markets dive. The question of retreat has been discussed now twice, but it is a bluff. Keynesian economics does not permit the retreat. If we are lucky, we get a President in 2016 who follows the policy of Reagan. This time government spending must really be cut along with regulations. The US must become an oil and gas exporter. Unfortunately, the Democrat Party and the Media oppose this, so for the time being, the Nation will continue on the same failed path. The day is coming very fast when inflation will accelerate.