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The Fed: Between Rock & Hard Place

Mike

Well-known member
The Fed embarked on a “we know best” policy of QE3 in the fall, and induced a market bubble in the spring. The S&P 500 gained 12 percent from January to June 2013 while growth remained subdued. The Fed realized its mistake, and now wants to get out. The problem is that in economics, as with most things in life, it’s much easier to get into trouble than out of it. The FED wants to take away the punch bowl, but knows that interest rates will rise, the stock market will crash, and the economy will tank. The longer it waits, the greater will be the inevitable adjustment.

If we do not learn from history we are bound to repeat it. We have been here before. The depression of 1920 and Roosevelt recession of 1937 show us what happens when excessive monetary printing is followed by tepid tapering.

The 1937 Recession is a perfect example of Austrian business cycle theory. It was severe but short. Output fell by 11 percent and industrial production by 32 percent. Unemployment surged back up from 14 percent to 19 percent.

http://mises.org/daily/6538/Fear-the-Boom-Not-the-Bust
 
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