One of the most interesting charts and observations from Paul Kasriel’s recent presentation on the economy is the following:

Will the [economic] headwinds prevail, pushing the economy back into recession?

Not likely. Over 50 years of history suggests that the economy does not enter a recession unless the Fed pushes it into one.

fedfundsrecession.png

Paul’s chart shows that Fed tightening has preceeded every recession for the past 50 years, including the one we’re coming out of.  And although SOME people are concerned about inflation, our current Fed chairman is nicknamed “Helicopter Ben.”

Paul doesn’t see the economy doing a double-dip unless the Fed tightens.  And Paul doesn’t see the Fed tightening until the middle of next year at the earliest.

Read Paul Kasriel’s full presentation on the economy here >


Can The World Print its Way to Prosperity ?

I am hopeful that yesterday’s Fed meeting marked a change in sentiment.  Investors are fed up with seeing the dollar get trashed by the Federal Reserve and wasteful government policies.  The boom, bust cycle and blatant manipulation of the capitalist system must not be allowed to continue.  This flawed idea that we can somehow print our way to prosperity is finally seeing some resistance.  The only way to achieve prosperity is via fiscal prudence, sound monetary policies and free market capitalism.   That means keeping your financial house in order – even if you have a printing press in your basement.  The citizens of this country should hold our government to a higher standard.  They should not be allowed to destroy the money in our pockets just because they can’t manage their checkbooks.

Yes, I know, times are tough.  There’s a recession going on.  But what do people do in times of recession?  They cut costs, maximize income and save cash in case things get worse.  Our corporations are doing a fantastic job of this as is seen in corporate earningsOur citizens are doing an incredible job despite 7MM job losses, stagnant wages and the most challening consumer environment in decades.  But for some reason our government has turned to the same flawed tactic that helped cause this mess – the printing press.  When times get tough for the government they decide it is wise to take on more debt, devalue the currency and increase the tax burden on their primary income source.  Many investors think that we have stared into the abyss and staved off disaster.  But what is so different about today than 2008 or 2002?  Did we not implement the exact same strategy in 2002?  Have we actually fixed our long-term structural problems?

Ben Bernanke thinks the printing press can save us from a repeat of the Great Depression 2.  I’ve said it once and I’ll say it again – we were never even close to an economic downturn like the Great Depression.  But what we are in very real threat of is Japan 2.0 – a long and drawn out period where real output actually climbs, but a debt burden plagues the entire system.  Sounds familiar, right?  The data of late appears fine, but under the surface the consumer is still struggling and the system is bloated with debt.  As I’ve detailed previously, the cause of Japan’s problems lied in massive government and corporate debts.   They implemented nearly identical strategies of low interest rates, quantitative easing and allowing the banks to merge and earn their way out of their problems, but the underlying structural problem of too much government and corporate debt persisted and plagued the system for years to come.  Fiscal stimulus and wasteful spending only compounded the problems in the long-run:

 YOU CANT PRINT YOUR WAY TO PROSPERITY

We can only hope that yesterday’s dollar reversal was the markets way of telling the Fed: “enough already”.   It’s time for our government to stop with the wasteful spending,  wasting taxpayer dollars on zombie banks and destroying the currency in our pockets.  A dollar rally might kill the stock market rally, but the message it sends to the Fed will almost certainly be in the best interest of every investor in the global economy.

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