Whether it's minutes from the most recent Federal Open Market Committee, excerpts from the latest beige book reading, or some suggestive cough or sneeze in between -- the mainstream media answers the call of the Fed’s voice like a cat to an electric can opener.
To them, it’s the quickest way to satisfy the hunger for insight into the future of the U.S. economy and get a taste of which bird “Helicopter” Ben will fly next: hawk or dove?
These days, as the most severe credit downturn sends the world’s leading economy spiraling toward recession, the meal du jour for most Fed members is strictly squab; served, as it were, with a side of Cash Infusions and Interest Rate Cuts.
March 7, 2008: The Fed increases the size and repurchase of its Termination Auction Facility (TAF) program -- i.e. "Repos" -- to the amount of $200 Billion. “Given what we have seen in terms of illiquidity in the financial markets, this came right in time.” (Bloomberg)
Really? Forget the fact that TAF’s allow banks to give the Fed a range of collateral in return for loans, including -- gasp-- mortgage-backed securities. The larger point is far more disturbing: Since August 2007, the Fed has already pumped nearly $200 Billion in short-term loans into the U.S. economy… to no avail.
Optimism surrounding the very first infusion -- the August 10 $38 billion booster -- rings eerily familiar now. “Fed Races To The Rescue,” cheered a same-day news source. “The Fed’s intervention… calms the markets torn by worries about evaporating credit.”
And, this March 7, 2008 news item: “It’s good that the Fed is coming to the rescue, the bad news is that they have to.” (AFP)
The other consideration is the widespread faith in the Fed’s ability to stave off further economic turmoil via interest rate cuts. Following the March 7 U.S. Department of Labor report revealing a three-year high in the jobless rate, one news source leaves no option: “The economic situation is getting weaker. The Fed has to cut.” (Bloomberg)
News Flash: The central bank has slashed rates FIVE Times since September 2007. All the while U.S. stocks have plunged more than 20% from their October peak, the housing slump has worsened, the financial fall-out has intensified, and the spread between low grade and high-grade debt has continued to WIDEN.
This is not unusual. To wit: During the period between 1984 and 1992, the Federal Reserve slashed rates from 11.75% -- TO -- 3%, a severe cut that did nothing to prevent the worst stock market collapse since the Great Depression in October 1987, record-high unemployment, a debilitating savings and loans crisis, slow GDP, and economic recession.
Similarly, a Federal Reserve rate cut from 6.5% -- To -- 1.25% from 2000 to 2002 proved impotent against the longest stock market decline since the Great Depression, the tech-bubble bursting, and a brief economic recession.
(Please Note: From June 2004 to June 2006, the Central Bank RAISED rates from a half-century low of 1% -- TO -- 5.25%, an equally futile effort to tighten the spigot of easy money and remove the froth from the bubbling housing market before it burst.)
Chapter 13 of Bob Prechter’s award-winning book Conquer the Crash describes the “monetary strategy” of lowering the Federal Funds Rate to be as effective as “pushing on a string.” Bob’s ultimate observation is dead-on: “The Fed’s purported ‘control’ of borrowing and lending ultimately depends upon an accommodating market psychology...”
No matter how much money the Fed injects into the economy OR how low interest rates go, nothing will encourage the consumer to spend, the bank to lend, or the corporation to borrow but an uptrend in social mood. Now, in the March 2008 Elliott Wave Financial Forecast, our analysts reveal whether such a psychology is at hand.