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The Fed Prepares for Mistake #3

Written by Staff Writer
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640px FedReserve AtlantaThe Fed Prepares for Mistake #3 -Bonner/Bonner And Partners
"You'll recall that Mistake #2 is raising interest rates to try to mitigate the damage done by Mistake #1 (leaving rates too low for too long). Mistake #3 is dropping them too sharply to try to undo the damage caused by Mistake #2....Investors believe that central banks control stock prices - which, of course, they do… to a point...

The tide of hope and optimism that had begun with the Reagan Administration crested in 1999. It has been downhill ever since. Since then, GDP growth rates have gone down; real incomes for real people - in America - have declined...From a positive-sum, win-win world… it ebbed back to a zero-sum, win-lose world. From Greed to Fear, that is. That's what we're calling the big moves in our Dow-to-Gold gauge. It peaked out in 1999 at over 40 (it took more than 40 ounces of gold to buy the Dow). Today, it's around 20. Three times in the last century, the gauge went below 5. Our guess is that it would have reached its rendezvous with destiny again - below 5 ounces of gold to the Dow - in 2009, had the Fed not intervened. But the Fed panicked. It then disguised, delayed, and denied the truth of this tidal shift by falsifying the most important price signal in capitalism - the price of capital itself. Mispricing capital - by setting artificially low interest rates - made the downtrend worse. Growth slowed further. The Swamp deepened. The empire grew bigger and more corrupt. The downward trend is not limited to the U.S. Europe, Japan, and China all show the same symptoms."