FED Can Not Save The Economy
Government intervention makes the economy worse on the long run. FED is trying to fix it now. But FED propped it up for decades. If they do nothing now, the crash will be too big to bear. I am talking about DOW in 3 digits.
Government interventions such as FED, FDIC, Fannie, Freddie caused the credit bubble and too big to fail. FED made credit easy and America borrowed for decades at artificially low rates. FDIC blinded the depositors and nobody questioned the bank actions until too late. Fannie, Freddie made mortgages easy and propelled home prices and the "home is a piggy bank" mentality that created artificial consumer spending that could not be sustained.
Now entire economy, prices and salaries are all based on these excesses of the past. Why did the government do this? Because inflating the money supply is the only way they know to fix a recesssion. To postpone every recession they could, they encouraged people to borrow. Because when we borrow, banks create money out of thin air and give it to us:
http://www.kondratieffwavecycle.com/web-of-debt/
This new money inflates the money supply and makes it easy to earn. So, what is the problem? There comes a time when we run out of borrowers. When entire economy is awash in debt, the interest burden of total debt becomes too heavy to carry. Thus borrowing stops. So, what is the problem? Let it stop? No. Because when we borrowed the principal, we promised to pay back principal + interest. The interest portion does not exist yet. Thus it cannot be earned and paid. That is what makes a deflationary crash! Great Depression will pale.
http://www.kondratieffwavecycle.com/economy/day-of-reckoning-deflationary-depression-is-near/
An entire nation cannot borrow for decades, inflate the money supply with borrowed money and then hope that all will be fine when the pay back time arrives. FED's hands are tied. Obama's hands are tied. There is no good way out of this.
The mistake was to inflate the credit for decades. The cause is in place. The effect will follow. It will deflate. People say with Fiat currency deflation cannot happen. What is Japanese currency? Gold? They had deflation for two decades. Buckle up for the long haul.
