Every recession we’ve had in the last 95 years was due, at least in part, to the Federal Reserve.
The explanation is simple really. The economy is far too complex and dynamic for the Fed to accurately project where it will be a few years from now.
And to make matters worse their most effective tool for controlling the economy – interest rate adjustments - can take six to eighteen months to work their way through the economy. In other words, the only way the Federal Reserve can save the economy from a recession is to know it is coming at least six to eighteen months in advance.
Even with the tools the Fed has, this is virtually impossible. And it’s the main reason why they’re so late responding to the economic cycle. Here’s a quick scenario:
If the Fed thinks the economy is growing too fast, they’ll keep interest rates high. The longer they keep rates high, the more the economy slows down. In fact, the Fed usually won’t lower rates until they see signs of an economic downturn. By the time they see these reports, the recession is almost completely underway and the Feds first interest rate cut won’t be felt for another six to eighteen months!
The best way to think about how the Fed can help us in an economic downturn is like this: They try to make sure recessions don’t turn into depressions.
So don’t get lured into making bullish bets because you think the Fed can save us from a recession. They just don’t have the power to do that.
The last lowering of the interest rates is adding gasoline to the fire. The fire of inflation. The Fed has done the right thing 8 months ago starting on 8/16/07. They kept pumping money and lowering interest rates to keep the mortgage and bank companies from imploding like 1930. So I have to give them great thumbs up. But the piper we will pay this timie is inflation. Where in the 1930's the Piper was deflation and contraction. So what do you put your money in now to make inflation work for you? Gold and Silver.