From A Lightning War for Liberty:
… Well the Fed meeting came and went, and in my opinion, they did less than zero.
The extension of operation TWIST is the biggest non-event, nonsense move in the history of the Federal Reserve. In fact, it does more harm than good on several fronts, and it would have been smarter to have done nothing at all. Most significantly, the fact that they felt the need to “do something” should tell you something.
With stock prices near their highs and the 10-year Treasury at 1.60%, or just shy of record low yields, what is the rationale for any action? The answer to this question of course is that many of the world’s economies have been in recession for much of the year and as I have said for weeks, publicly and privately, I believe the U.S. joined the recession club at some point in May of this year.
I think The Bernank understands this but dares not say it. Just like he rambled on about how “there was no housing bubble” and that the “subprime crisis was contained” back in 2007/08 as the world tipped into financial implosion, he employs the same strategy today. The core strategy at the moment, as I mentioned previously, is “talk up the economy, talk down printing and pray.”
While this is all well and good, the biggest problem that The Bernank now faces is that the financial markets are such a distorted hologram that all asset prices are vulnerable to flash crash type moves. No one believes in their positions (other than people that hold hard assets like precious metals outside of the banking system and will not sell until the system is reset), rather investors and traders are forced to be involved in positions as a function of their mandates. Their decisions are no longer driven by economic or business prospects but rather by some view on what the Central Planners of the world will do next.
The markets seem calm but there is a storm brewing beneath them and the pressure will be released one way or the other. We are now in the crucial six week period between Fed meetings.
The reason I think this is such an important time is because not only will investors come to grips with the reality on the ground (recession) but it is also…