Chairman Ben Bernanke of the Federal Reserve announced yesterday September 13th that the FED would put into action an open-ended plan to purchase $40 Billion dollars of Mortgage Backed Securities every month. Thats about $500 Billion a year. They will also hold interest rates at near zero until at least mid 2015.
What a shock! Just like I predicted.
Between the FED and the Government they've created such a situation where there is no easy way out. Theres only two real options; either they are to incompetent to realize that their "solutions" are only increasing the underlying problems, or they know and are just trying to hide the truth for as long as possible. Either way its not good. The only way we'll see a real recovery is they stop intervening and just let markets find their equilibrium. We have a very harsh reality to face, that is true, but the sooner we face it the sooner we can begin with a fresh slate and correct the real problems. The perverbial can is just being kicked further and further down the road with the government bailouts and the banking bailouts and QE1,2,3,4; but no matter how long the road stretches, theres a cliff at the end of it.
The government is in dire straits. They have no money and continue to fall farther and farther into debt with every day. but instead of making cut backs like a normal business, they continue to borrow and grow the government with more tax programs and bailouts and stimulus and wars. Ofcourse wall street is happy because the stock markets keep floating higher on the constant wave of money coming from Ben at the FED. But what the average Joe doesnt realize is that while their mutual fund moves up a couple points and their housing prices seem to regain a foothold its only because the FED is diluting the currency with Trillions of dollars. So their savings and retirement funds are being swept away.
Analogy:
If Ford Motors produces only one of a new model vehicle its going to be worth a lot. But if Ford produces 1 Trillion of the same model, you couldnt give one away. They'd be worthless because everyone would have a hundred of them in their back yard. Well its the same thing with Dollars. Right now having $50,000 is great, but when all those fresh trillions hit the markets that $50,000 wont buy a stamp. Thats what QE is doing to the public savings.
