Tuesday, June 15, 2010

Federal Reserve Very Concerned About Double Dip Recession

The Federal Reserve appears to have serious concerns that the economy is heading into a double dip recession. That's the only way to read a report coming from WSJ reporter Jon Hilsenrath.

Couched in the conservative, hedging style of the Federal Reserve, Hilsenrath's column is really a five alarm fire bell. Hilsenrath does not quote anyone by name and merely refers to "Fed officials", but this type of story does not come out without a strong source.

Hilsenrath writes:
Federal Reserve officials are beginning to debate quietly what steps they might take if the recovery surprisingly falters or if the inflation rate falls much more.

Fed officials, who meet next week to survey the state of the economy, believe a durable recovery is on track and their next move—though a ways off—will be to tighten credit, not ease it further. Fed Chairman Ben Bernanke has played down the risk of a double-dip recession and signaled guarded confidence in the recovery.

But fiscal woes in Europe, stock-market declines at home and stubbornly high U.S. unemployment have alerted some officials to risks that the economy could lose momentum and that inflation, already running below the Fed's informal target of 1.5% to 2%, could fall further, raising a risk of price deflation.

The Fed's official posture is unlikely to change when policymakers meet June 22 and 23: The U.S. central bank is expected to leave short-term interest rates near zero and signal no inclination to change that for a long time.

But behind-the-scenes discussions at the meeting could include precautionary talk about what happens if the economy doesn't perform as well as expected.
What is the Fed considering doing if it is clear the economy is headed for a double dip recession? Why, print more money, of course.

Hilsenrath writes:
...he recovery falters, or if inflation slows much further and a threat arises of deflation, a debilitating fall in prices across the economy. In such cases, there would be a few avenues the Fed could take.

One is asset purchases. During the financial crisis, the Fed purchased $1.25 trillion in mortgage-backed securities on top of buying debt issues by Fannie Mae, Freddie Mac and the U.S. Treasury. Mr. Bernanke has said the steps helped to lower long-term interest rates, including rates on mortgages.

The Fed could resume such purchases, although it isn't clear that they would have as powerful an effect as they had in 2008 and 2009, because long-term rates are already low. Rates on 30-year fixed-rate mortgages are about 4.7%, down from 5.2% in early April.

The Fed could also take an intermediate step. Right now, it isn't reinvesting cash it gets when mortgage-backed securities are paid off by borrowers. If the Fed reinvested that cash—projected to be about $200 billion through 2011—in mortgage bonds or Treasurys, it would help keep the financial system awash in money and could hold interest rates down.
These are all money printing means that will ultimately lead to inflation. It is, ultimately, the only tool the Fed has at its disposal and is a very good reason to own gold, even if there is the potential for a short-term dip in the price.


  1. Hilsenrath makes the same assumption as RW. That govt. monetary manipulation has an anticipated impact on the real economy. According to this assumption the FED's liquidity flood prevented a "depression" and helped to restore the economy to growth. As did the "stimulus" spending. So if monetary manipulation stops and liquidity growth flattens (as RW has shown) the economy will also slow and decline into a "double dip." Surprisingly, It appears RW and the FED are in agreement on this

    The assumption is not sound. There is no proven cause and effect relationship. No cardinal measure that can show the exact effect of government action on the real economy. There may be an ordinal relationship that shows government action to be always a burden, an expense to the real economy. But this cannot predict a "double dip." It is even uncertain how to define the economy in a way that would make reference to a "double dip" meaningful.

    Rather than trying to measure the unmeasurable, it would be meaningful to eliminate the burden and enable people to pursue their well-being peacefully.

  2. States can not run a deficit.

    The states avoided massive layoffs last year due to creative accounting and one time stimulus money from the federal government.

    Massive layoffs in the public sector are coming in the next six to eighteen months.

    Without massive hiring in the private sector to offset this - employment and the economy will shrink.

    Just filling in the holes in Mortgages and Banks with printed money will not fix the economy.

  3. I'm amazed more people haven't parted company with the FR's bank note already. Heck, I've been running wildly from it for over a decade!

    Truly, whispers in crumbling fortresses of the FR have no interest to me- it is the exact opposite as the old "E.F. Hutton" ads: I don't give a rip.

    Moreover- if one truly believes the fractional reserve system is immoral, then why go about slithering under the table for their scraps?! A much better alternative is to simply, peacefully, and boldly RESCIND YOUR CONSENT.

  4. nader paul kucinich gravel mckinneyJune 16, 2010 at 12:10 AM

    Federal Reserve Very Concerned About DEPRESSION

  5. notice how debt is considered to be an "asset".
    something fundamentally wrong with that equation.

  6. Hell we are already in a second Great Depression! Food Stamps have replaced soup lines!

  7. Debts are discharged never paid! Debt is not money! FR Notes are debt instruments that have no real tangible asset value. You can only exchange FR Notes to a gold broker for less than a one for one value. They can not truly operate as Constitutional Currency. You get paid say $1000 per month go to the bank and cash your checks buy gold at $1000 a $50 face value gold piece so you get 1 gold coin valued at $50 a piece. Your W-2 says you made $12,000 but real Cpnstitutional money you only have $600 for the year! When you file taxes and you claim you only made $600, What is the IRS going to say? Our money is suppose to be exchanged for 1 to 1. One dollar should equal one Morgan Silver Dollar. But, it doesn't! The Federal Reserve needs tgo be shutdown and the government Treasury should issue their own money instead of having to pay interest on the same money they print and give the the FR and have them loan it back to us!

  8. If they think its bad now, let obama push cap and trade through...you will see bad then...real bad..
    the ugliest kind of bad...

  9. "When a government is dependent upon bankers for money, they and not the leaders of the government control the situation, since the hand that gives is above the hand that takes... Money has no motherland; financiers are without patriotism and without decency; their sole object is gain." - Napoleon Bonaparte, 1815

  10. This statement says it all:

    "..if the recovery surprisingly falters or if the inflation rate falls much more."

    It is not "surprising" in any way, shape or form that the recovery is going to falter...

    What a bunch of a**hats these Fed "officials" are...

    This so-called "recovery" was doomed from the outset, as it is a rehash of failed policies that history tells us will fail - miserably.

    Please vote out any congressional representative or senator who does not support HR1207 or S604.

    The Federal Reserve System IS THE PROBLEM - and is a parasitical entity preying on ALL of US.


  11. There is overwhelming evidence to suggest that the hole torn in our economic hull is too large to save our nation as we have known it. The end of our nation is the true calculation of the Fed, either in the form of socially redifining indentureship under crushing taxes for the foreseeable future, or else - and this is their real worry - revolt and social decomposition dwarfing even that of the Civil War. This is also a world problem, as the US and the rest are closely tied through the central banking system. This is why we must, if we value our futures in a context differing from the sort of 'peace' which slavery brings, eliminate this process, and the incumbent mechanism which sustains it.