Friday, April 25, 2014

The Fed's Hallucinogenics

By Chris Rossini

Whenever The Fed creates its artificial booms, the administration that happens to be in power at the time will tend to puff out its feathers and take credit, as if its wealth-destroying policies are somehow the cause of the prosperity illusion.

In other words, the goggles known as the "wealth effect" are not limited to the general public only. Bureaucrats are some of the strongest "believers" too.

Let's look at a few examples:

During the fractional-reserve banking boom that led to the Panic of 1907, the "wealth effect" was in full effect. Edmund Morris writes in The Rise of Theodore Roosevelt:
The Washington Evening Star reported “we are the richest people in the world.” Never have American farmers harvested such tremendous crops; railroads are groaning under the weight of unprecedented payloads; shipyards throb with record construction; the banks are awash with a spring-tide of money. Every one of the forty-five states has enriched itself since the last census, and in per capita terms Washington, D.C., is now 'the Richest Spot on Earth’.
Here is where President Theodore Roosevelt puffs out the feathers:
Politically, too, it has been a year [1907] of superlatives, many of them supplied, with characteristic immodesty, by the President himself: “No Congress in our time has done more good work.”
Later that year? KABOOM! Major financial crisis.

Unfortunately, The Panic of 1907 would act as the impetus for making life worse for the entire Earth over the next century. This was the crisis that led the push for The Federal Reserve that would be established in 1913.

Now let's move to The Federal Reserve's artificial boom known as The Roaring 20's. The wealth effect would cause the bureaucrats to once again puff out the feathers. In July of 1928, President Hoover would proclaim:
"The outlook of the world today is for the greatest era of commercial expansion in history.”
In September of the same year, Secretary of the Treasury Andrew Mellon, would say:
“There is no cause to worry. The high tide of prosperity will continue.”
What happened in 1929?...KABOOM!

The wealth effect goggles came off and reality bit hard! By this time, the idea of government omnipotence was so strong in America that The New Deal would not only usher in a depression, but a "Great" one to boot.

Now let's fast forward to a boom that's near and dear to all of our hearts. The year is 2000, and "the new economy" is making everyone "rich". Did you hear that Yahoo! stock was up over 50 bucks today? If you missed it, buy some Qualcomm tomorrow and you're sure to catch a $100 move. You are properly diversified in biotechs right? What about fiber-optics? They're laying that stuff all over the ocean floor.

Were there peacock feathers? You bet! On Oct. 17, 2000 Al Gore proclaimed:
We have seen the strongest economy in the history of the United States...But I’ll make you one promise here: You ain’t seen nothing yet. And I will keep that promise.
Next scene? KABOOOM!...followed by an even bigger housing KABOOOOM!!

And ever since, The Fed has been desperately trying to create another fiat wonderland of fun. But nothing seems to be working. Poor Obama hasn't had the chance to puff out his feathers.

Hopefully, someday, we can all get off The Fed's hallucinogenics.

Chris Rossini is on Twitter


  1. artificial boom? The economy did not even grow 2% last year. There is no boom. That is simply population growth and worker productivity increasing. Both happen naturally without any help from the Fed.

    Hard to argue the Fed is having a huge impact on the economy. Perhaps it is helping a little but it certainly is not causing a boom or a "fake economy."

    Quite ridiculous to say the Fed is creating an artificial boom when there is nothing close to a boom.

    1. You are too stupid to even see how stupid you are.

      You never defend your moronic posts, so please shut up.

      Bob, please ban this retarded troll. PLEASE!

    2. You're conveniently ignoring near record highs in the stock market and housing sector.

      And then there's the bond market - undoubtedly the biggest Ponzi scheme in world history. Only a fool would lend the most indebted entity on the planet their savings to get a 10-year yield at 2.7% when the currency it's priced in is being debased well beyond that.

      But, to your point, it isn't so much that the GDP (a flawed metric, if there ever was one) is showing sluggish gains. What you're missing is what it would be absent all of the mad money-printing. It's safe to say that all of these markets would be tanking, interest rates would be soaring, and the real economy would be on its death bed.

      That's not to say that the Fed-induced high should continue. The phony economy needs to be destroyed in order to replace it with a viable one. That's not going to happen with the collection of ignoramuses in Washington running the show. After all, there's another election around the corner and there are votes to buy. So we will muddle along until the whole thing goes over the cliff.

      There is no soft landing. The result is going to be horrific.

    3. That's exactly the point of the post, Jerry, but you seem to have a reading comprehension problem: "The Fed has been desperately trying to create another fiat wonderland of fun. But nothing seems to be working. Poor Obama hasn't had the chance to puff out his feathers."

    4. Re: Jerry Wolfgang,

      --artificial boom? The economy did not even grow 2% last year. --

      Who told you that the Fed is being successful or where does it say the Fed is succeeding? The article is saying that the Fed is trying, not that it can anymore.

      -- Hard to argue the Fed is having a huge impact on the economy. --

      Inflation and the overvaluation of the stock market notwithstanding, I would presume. Right, JW?

  2. Brilliant as always, sir. And thank you for pointing out that there is indeed cause for hope: after over five miserable years, Obama can't puff out his feathers.

    Seems like the Fed's been doing more and more cutting with strychnine. The hallucinogenics just aren't working quite the same anymore.