Is The Fed Making A Bigger Problem Than It's Solving?
When the 1990s boom came to an abrupt end, the U.S. appeared to be heading for a tough recession. To prevent it from happening, Alan Greenspan pushed interest rates all the way down to 1%. It was a close call, but the economy pulled back from the brink and started a slow recovery.
Some economists are not happy that the recession was avoided. They argue that downturns are needed to correct the abuses and bad investments that accumulate during booms. The critics say that by keeping the recession at bay six years ago, the problems continued into the current upturn and became much worse.
If the critics of the Fed's actions are correct, the current bailout will push our economic instabilities ahead once again, and make the next downturn an even bigger threat. At some point, the problems will become so bad, the Fed won't be able to put them off anymore and we will have a very serious downturn.
The argument that the Fed is creating more problems than it's solving has some merit. However, it doesn't have much immediate value for investors. As the current economic slowdown comes to an end, there will be a lot of money to be made. The best plan is to get your share of the loot and evaluate the future when it becomes easier to see.
I feel the problems will surface in the year 2009 because of the elections. It doesn't matter who is elected President because the economy still moves along with or without the Fed intervention.