The Fed Has Trapped Itself In a Market Mirage
In a new commentary published by The Gold Republic Journal, renowned author and economist Jim Rickards explains why the Federal Reserve cannot safely exit its quantitative easing program. Rickards argues that the supposed strength of the US markets is a complete mirage created by the Fed’s policies.
The Federal Reserve, the central bank of the US, is nearing the end of its ability to manipulate the US economy without producing consequences worse that those it set out to avoid in 2008. The Fed has no good exits from seven years of market manipulation. If it continues its current policy of reducing purchases of assets, the so-called ‘tapering,’ it risks throwing the U.S. into a recession. If it reverses course and pauses the taper and later increases asset purchases, it risks destroying confidence in the dollar among foreign creditors of the U.S. Both outcomes are potentially disastrous, but there are no good outcomes on the horizon. This is the result of manipulating markets to the point where they no longer function as markets providing useful price signals and guiding the efficient allocation of capital. Today markets are a mirage, created by the Federal Reserve, which is caught in a prison of its own device.”
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