The Economic Collapse
August 10, 2011
August 10, 2011
The Federal Reserve has saved the stock market! Well, at least for a day. That was one heck of a "dead cat bounce" that we saw on Tuesday. Normally, after the kind of dramatic decline that we saw on Monday there is some sort of a rebound, but on Tuesday the market did not begin to soar until the Federal Reserve pledged to leave interest rates near zero until mid-2013. Once the Fed made their announcement, the market went haywire. At one point the Dow was down more than 200 points, but by the end of the day it was up 430 points. It was a desperate move for the Federal Reserve to pledge not to raise interest rates for the next two years, and it has stabilized financial markets for the moment. But what is the Fed going to do to save the stock market when it starts crashing next week or next month? The underlying financial fundamentals continue to get worse and worse. Europe is a mess, Japan is a mess and the United States is a mess. The Federal Reserve can try to keep all of the balls in the air for as long as possible, but at some point the juggling act is going to end and the house of cards is going to come crashing down.So how high could the price of gold go in the coming months? Well, analysts at JP Morgan are forecasting that the price of gold could hit $2,500 by the end of this year.
Yes, that is how wild things are becoming. The Federal Reserve is painting itself into a corner. Never before has the Fed pledged to leave interest rates near zero for the next two years. The following is an excerpt from the statement that the Fed released earlier today....
To promote the ongoing economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent. The Committee currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013. The Committee also will maintain its existing policy of reinvesting principal payments from its securities holdings. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate.Needless to say, the rest of the world is not pleased by this nonsense from the Fed. Yes, the Fed has stabilized financial markets for the moment, but a lot of ill will is being created with the rest of the globe. The following is what Bruce Krasting had to say about how the rest of the world is going to react to this latest Fed move....
Brazil, Argentina, Korea, Indonesia are going to scream bloody murder over perpetual ZIRP. Russia is likely to get downright ugly with their rhetoric. I wouldn’t be surprised if they took this opportunity to vote with their feet and just abandon the dollar as a reserve holding. China will also make noise. They will make more calls for a new international currency to replace the dollar. The Central bankers in Japan and Switzerland are puking in the trashcan over this. Bernanke is exporting US deflation to them. Shame on the Fed for pursuing Beggar my neighbor policies. They deserve all the global criticism they are about to get.The Federal Reserve is using up all of the ammunition it has available and the game has barely even begun.
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