by Martin D. Weiss, Ph.D.
The Fed just cut interest rates by a quarter point, again!
But this time it's trying to turn up the volume a bit on its anti-
inflation rhetoric =97 trying to send the message that it "really means
it."
Baloney!
Instead of following Teddy Roosevelt's dictum to talk softly but carry
a big stick, the Fed's talk is loud but its stick is non-existent.
Indeed, to make a dent in galloping energy costs, surging food prices
and double-digit im****t inflation, the Fed would have to do a heck of
a lot more than just talk.
To make a real difference, the Fed would have to jack up rates above
and beyond the level of inflation!
But right now, even using the government's jury-rigged CPI, inflation
is running at 4%. And with today's cut, the Fed funds rate is only 2%.
That means the real interest rate (minus inflation) is a full two
percentage points below zero!
Strange, but true. Money here in the U.S. isn't just cheap. Nor is it
merely free. Instead, lenders are actually di****ng out the money, and,
after adjusting for inflation, they're effectively paying borrowers to
take it off their hands.
That just goes to show you how far the Fed has gone to drive rates
down ... and how little they've heeded the blatant warning signs of
potentially rampant inflation.
Has this happened before in our lifetime? Yes, but only once =97 in the
late 1970s. And that time it created such a hotbed of inflation that
consumer prices, even as measured by the government, were soon zooming
at a double-digit pace, the worst inflation since the Civil War.
Regardless of what may happen in the short term, this is not exactly
good for the U.S. dollar.
Indeed, as long as real interest rates in the U.S. are below zero, and
as long as the Fed's actions to defend the dollar are little more than
talk, the dollar's ultimately doomed to much deeper declines.
Good luck and God bless!
Martin
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