Unfortunately, the story of a U.S. economic recovery is a fiction, and plummeting tax receipts across the board are the single best piece of evidence that exists arguing that point. But that may not be the playbook the monetary authorities are using. And so, later this year, be on guard for the Federal Reserve to deliver the coup de grace, both to itself, and, more importantly, the U.S. economy, when it concludes making its biggest blunder (of many blunders it has made over the last quarter century) by reacting to an economic recovery that does not exist.
Friday, February 19, 2010
The Gigue is Coming to an End.
Yesterday, after the closing bell on Wall Street, The Federal Reserve announced they will raise the discount rate by a quarter of a percentage point. By itself, an increase in this lending mechanism, especially in an environment where bailouts and Quantitative Easing have been a fixture of the landscape, is essentially an empty gesture. However, given the government's enormous funding requirements, and assuming that The Federal Reserve believes an economic recovery is in progress, one could reasonably surmise, however counter-intuitive it may seem, that yesterday's tepid discount rate hike by The Federal Reserve is just a harbinger of a series of liquidity draining operations to come.