Can The Fed Stop The Bleeding
Below is a MRR and PLR article in category Finance -> subcategory Wealth Building.
Can The Fed Stop The Bleeding?
Summary:
Surely, they wouldn’t let the worst happen, would they?In recent weeks, the subprime crisis seemed to erupt from nowhere, sending shockwaves through financial markets, from stocks and mortgages to hedge funds, banks, precious metals, and consumer spending. But, as detailed in my newsletters, updates, and book, this did not truly appear out of the blue. It was a predictable event. “Blind Freddy” should have seen it coming, and it took longer than expected to unfold.
As of August 18, central banks globally, notably a panicking European Central Bank, have injected hundreds of billions into the system to combat fear and a freeze on lending?"even between banks. Now, the Federal Reserve has lowered its discount rate by 0.5%, a last-resort move for banks. Will these efforts halt the bleeding in the credit markets, prevent skyrocketing mortgage rates, or stabilize stock and financial markets? In a word, NO!
There's a widespread but mistaken belief that governments and central banks can prevent any monetary or economic catastrophe. The hope is that a 1930s-style depression is obsolete due to safety nets, wiser authorities, a stronger global economy, and technological advancements. This is nonsense! Few who believe this can provide facts or historical evidence to support it.
Let's look at recent examples that illustrate the powerlessness of governments and central banks during financial crises:
Example 1:
In the 1990s, against all odds, Japan's stock and property markets collapsed. Once an economic marvel, Japan fell into a prolonged recession, plagued by deflation for decades. Despite the Bank of Japan lowering interest rates to zero and the government spending trillions on infrastructure, they failed to jumpstart the economy or encourage spending. Why?Example 2:
On Thanksgiving Day 2000, the US economy hit a wall. Public spending abruptly halted, unnoticed by many despite the stock market decline months earlier. Then-Fed Chairman Alan Greenspan panicked, slashing short-term interest rates by 0.5% on January 3, 2001. The S&P 500 surged 5% that day?"but it was fleeting. Over 18 months, rates were cut twelve more times, down to 1%, yet the S&P 500 fell 44%. Why?The reason is that governments and central banks react?"they don’t lead. Their actions temporarily mask issues, often adding to the debt mountain causing the problem initially. Socionomists understand that humanity’s collective behavior moves like ocean waves: growth inspired by optimism is inevitably followed by regression. Central banks and governments can’t change this, and a flawed monetary system worsens the issue.
Human behavior follows patterns. Mainstream economists often overlook these patterns, leaving them blind to impending crises. They failed to recognize the last Great Depression until it was too late and are equally blind now.
My book, "How to Profit from the Coming Great Depression," focuses on opportunities despite looming challenges. Central bank interventions won’t prevent crises born from the subprime mortgage meltdown, a mere symptom of underlying issues. Only the Wave Principle reveals the real cause.
Focus on understanding these patterns, and you’ll see why intervention alone cannot prevent catastrophe.
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Happy wave watching!
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