Well, Damn It, Here We Go Again …..

Federal Reserve Chairman Bernanke announced at a conference this morning in Jackson Hole, Wyoming that the Fed through the FOMC ( Federal Open Market Committee) stood ready to resume the purchase of long term US debt in the event they determined that the economy was likely to continue to worsen, prompted apparently by the report that 2nd quarter GDP grew only by 1.6%. The figure was revised down from 2.4 percent. Though low, the figure still came in higher than earlier government estimates and caused a temporary sigh of relief on the part of Bernanke. One more bullet dodged.

Three things about this announcement.

First you may recall the numerous earlier announcements last year and this year by the Fed about the positive progression of the economic recovery. Now comes the warning of a pending reversal and a tactical plan to hopefully deal with it should it occur. This, despite a gushing assertion and assessment by the administration’s chief go-go cheerleader and resident economics wizard, Vice President Joe Biden. Biden earlier this week raved about all the wonderful effects that the Administration’s unfunded stimulus spending has achieved for the country’s economy and the direction in which it’s headed due to jobs creation. Really Joe? Unlike you, most everyone else has concluded that every indicator's going in the wrong direction - not the right one!

The last time the Fed employed this tactic was through “quantitative easing”. That terribly cerebral sounding phrase which simply means the printing of new, completely worthless paper money to purchase American debt. Then through the magic of the Fed, like the transmutation of base lead into precious gold by alchemists of old, the debt becomes, get ready for it, an “asset”. The last time the printing presses were cranked up the Fed caused something shy of 2 trillion new worthless dollars to be added to the money supply. This time Bernanke says when the switch is flipped on we’re going for “trillions” dollars more. And why should we care? Because at the very least the printing of “de novo” money or worthless dollars is a dilution event that risks the devaluation of the rest of the money supply which includes your savings and paycheck.

The third aspect is that a weak kneed Bernanke commented, “Central bankers alone cannot solve the world’s economic problems,” . Fed speak for the world’s politicians, especially those of the United States, “you can’t keep increasing debt and deficits through reckless unfunded spending and expect us to manage it for a desirable outcome”. Ironic, since the Fed’s very use of “quantitative easing” to bail out politician’s irresponsible behavior only enables and encourages Obama and the US Congress into further irresponsible spending.