Fed’s Big Pivot and What’s Next for the Economy
International Man: Recently, the Federal Reserve Chairman Powell said: “The time has come for policy to adjust.”
It marked the official end of one of the steepest rate hike cycles in US history. The Fed will soon go back to easy money policies.
What do you make of this?
Doug Casey: Any discussion of what the Fed should or should not do, ought to be prefaced by a statement about how the Fed should never have been created, should not exist, and should be abolished. But that’s just in an ideal world. It’s not going to happen in the real world until the rotten system created by central banking collapses.
As it is, we’re stuck with a bunch of bureaucrats toying with the most important price in society, the price of money—interest rates. And, of course, everybody watches the Fed, trying to guess and second-guess what they’re going to do.
The way I see it? They need easy money just to finance the $2 trillion Federal deficit. It’s no longer a question of wise solons twisting this knob or pressing that pedal to optimize the economy as if it were a machine. At this point, they’re desperately trying to keep the machine from blowing up. In fact, even the commonly used machine analogy is wrong. The economy is more like a rainforest; trying to control it like a 19th-century factory is a big mistake.
They’re also pretending the US government isn’t bankrupt. The country’s numerous over-indebted zombie corporations need low interest rates to stay in business. But at least they produce something, however uneconomically. The government produces nothing but regulations, sport wars, fiat money, and penalties.
Of course, there are some sensible people at the Fed, even though they’re guided by very nonsensible Keynesian economic theory. They’d like to stop printing money and “normalize” interest rates.
However, after decades of distortions cranked into the economy, nobody knows what “normal” really is. Who knows what interest rates would be without all the money printing needed to support the government and all the debt and distortions in the economy?
We can only be sure that, at some point, the debt and distortions will be liquidated. And it will be scary when it happens.
International Man: It is unusual for the Fed to make such a dramatic pivot just before a presidential election.
What do you think the effect will be on the election?
Doug Casey: I don’t know what Powell’s political beliefs might be. Theoretically, it shouldn’t make any difference what they are because the Fed is supposed to be independent and non-political. But that’s a fantasy.
One thing we can be sure of is that the Fed sees serious political change as dangerous. They must see Trump as a loose
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