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The Federal Conserve

|Includes:SPDR Gold Trust ETF (GLD), IEF, IEI, SLV, TIP, TLT, USO
Not much has gone on in the markets the last few weeks. In fact, I must admit that I had thought this would be a volatile and uncertain month. It has been exactly the opposite, rather pedestrian by the standards set over the last few years. The one person who has been very busy has been Ben Bernanke, and his staff at the Federal Reserve. Undoubtedly, the Chairman of the Federal Reserve has become the most powerful economic force in the country. Although it is tempting, to debate the constitutionality or sanity of this fact should be left to another column and another columnist. What also needs to be examined is not whether Mr. Bernanke understands the historical parallels between today’s time and the early 20th Century, I believe he does. Nor, should his understanding of the causes and effects of Federal Reserve policy on the money supply and inflation be debated; I believe he understands this as well. What needs to be examined is not an ideological issue, it is a policy issue.
Should the U.S. Government be promoting spending, excess, borrowing, and leverage? Or should it be promoting tightening, conservation, and surplus? I believe it is the latter. Keeping rates this low right now will artificially encourage a creation of a second bubble. This will be a bubble that consumers do not want. The first bubble was a bubble of choice, a phenomenon stoked by our overextended lifestyles; this will not be.
People actually want to save now. We all realize the excesses of the past decade. We do not want it repeated. But, what if the Federal Reserve wills the American people to spend money? This will make politicians and small business owners happy, but at what cost? The answer is most likely a repeat of the 1970’s and the Great Inflation Part II. What we need is gutsy leadership, which is willing to do the right thing and allow the recession to continue for as long as the market will bear. We have had a collapse in the consumer economy that has been fueled by miss-guided Federal Reserve policy for years. Only time will heal the carnage to the financial system, and the mistrust between the public, politicians, and the financial community.
There was a glimmer of hope yesterday when it was revealed that Charles Plosser, the head of the Federal Reserve in Philadelphia said that the Federal Reserve may aggressively raise rates well before unemployment returns to normal. Well, at least that’s a good start. Urtunately anytime an economist tells you they are going to do something,it is more often than not much too late.

I may sound like a contrarian. I may even sound misguided, but that’s ok. Let’s face it, not many others out there are calling for an extension of the recession. Yet, sometimes it takes those of us who think about the long term, are not worried about re-election, and just want to see our country thrive, to make our voices heard. The question remains, is anyone out there listening?

Disclosure: Long SLV, Long TIP