Fed Up – February 18th 2017

If you were going to set up an organisation to help control and regulate the economy and the banking system how would you start? Would you employ over 1,000 Ivy League trained economists, many with PhDs, but little or no practical knowledge of running businesses? Would your board of governors come from the same background and would the owners of the organisation be the very bankers that you were duty bound to regulate? I somehow doubt it. But even if you were so minded would you then allow untested economic theories to be implemented without a thorough study of the potential consequences of zero or even negative interest rates on the real economy or the massive inflation of your balance sheet by the purchase of trillions of dollars’ worth of government debt? No, you wouldn’t, but welcome to the world that is the Federal Reserve System of the United States. Nine years into the recovery from the Great Financial Crisis and the Fed is still wondering why its policies are not working as intended. Their theory goes that if you lower interest rates, companies will be happy to borrow and invest in their businesses as consumers, who begin to feel the wealth effect of rising property and stock prices, pick up their spending levels. Several problems…

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