The Fed Apologises for Getting It Wrong

The Fed Apologises for Getting It Wrong

Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term.

The above quote is an extract from the US Federal Reserve statement on why US interest rates remain at zero. ‘Restrain economic activity somewhat’ is Fed speak for deflation. But Janet dare not utter the ‘D’ word and spook the crowd.

After all the concerted stimulus efforts the best they’ve produced is further downward pressure on inflation…

These people should be ridiculed not revered. I don’t get it.

This is the Fed statement I would have liked to have seen:

‘Clearly the global economy is telling us our seven-year long experiment in suppressing interest rates and printing US$4 trillion has been a dismal failure.

‘Therefore, we, the undersigned members of the Federal Reserve Board, forthwith tender our resignations.

‘However we would like to make a few apologies before we clean out our desks and head off to the warm embrace (and payroll) of our mates on Wall Street.

‘We apologise to savers for forcing them to take unnecessary risks (chasing high yield and low credit worthy investments) by suppressing interest rates for seven years.

‘We apologise to the average American for making the top 1% so rich they can afford to spend the price of a hospital on buying a piece of art. And also for our misguided wealth creation theory — believing the really rich would share their wealth around in sufficient quantities to boost the economy.

‘We apologise for making credit so cheap companies went on an unprecedented share buy-back spree to artificially goose up earnings per share which in turn triggered the payment of multi-million dollar executive bonuses.

‘We apologise for providing Wall Street with the fake liquidity that has turned it into the Las Vegas of the North.

‘We apologise for providing the government with a tool to build a level of public debt that has condemned unborn taxpayers to a life of tax servitude.

‘We apologise for indirectly financing government deficits that enable politicians to continue promising you free healthcare and welfare for life. Sorry, but it’s a con.

‘We apologise for never having got a real job or built a business. We know we have all the letters in the world after our name but we lack the ones that really matter. The ones that spell out — COMMON SENSE.

‘We apologise for being part of a system that tortured the employment statistics to indicate our hare-brained stimulus strategies were actually working. We know from the stories told to us by the waiters, cleaners, greenskeepers and caddies at our country clubs that the only jobs their friends and family could get were flipping burgers and serving coffee. We even heard that some people had just given up on looking for a job. In spite of these stories we went with the doctored data.

‘We apologise on behalf of all the former Fed members and Chairmen that played a part in keeping the illusion of economic growth going by encouraging you to take on more debt than your household could reasonably afford. We’re sorry we didn’t have the strength of character to stand up to Wall Street, politicians and didn’t protect your long term financial wellbeing.

‘We apologise for being intellectual, self centred and totally clueless on how an economy really functions…we now know the less we do, the better it is. We were abject failures in our stewardship of the economy. We realise that all we achieved was the creation of a system that is completely reliant on the financial sector to stay afloat. Too big to fail, too big to bail.

‘We apologise for duping you into thinking we could cure a debt crisis with more debt. We should have known this wouldn’t work when we saw Dominique Strauss-Kahn (former IMF chief) and Silvio Berlusconi (former Italian PM) try to cure their sex addiction by hiring more hookers. We just didn’t see the correlation at the time. In hindsight we can see that we’ve ended up at the same place…we’re all f****d.

‘We apologise to Bernie Madoff for letting him think he ran the biggest Ponzi scheme in town. Sorry, it‘s us. And we are oh so sorry to spring this nasty surprise on you at the 11th hour and 59th minute.

‘We are truly sorry for the financial hardship you are going to endure in the years and decades to come because of our continuous meddling in the pricing mechanisms of the market. We have made a bad situation worse and for this we express our deepest regret.

‘We apologise for having accepted our generous pension payments, lucrative consultancy positions and highly paid speaking engagements while you are forced to stay in the workforce for the rest of your lives because we blew your retirement capital to smithereens.’

Unfortunately it’ll be a cold day in hell before we ever see such a mea culpa from these pompous windbags.

Please accept my apologies for giving you any hope that one day (week, month, year or even decade) soon you might be told the brutal truth about the system our esteem central bankers and politicians have created.

They say many a true word is spoken in jest. My dig at the Fed board members is, in reality, anything but a light hearted matter.

We are sitting atop a US$200 trillion debt powder keg with a lit fuse. When it blows is anyone’s guess. But history tells us it will blow.

If you don’t take the time to understand the situation we are in and the severe risk this represents to your financial wellbeing, you will be the one who is sorry. And that will not be a laughing matter.


Vern Gowdie

Editor, Markets and Money


Vern is a contributing editor to Money Morning — Australia’s biggest circulation daily financial email. (To have Money Morning delivered straight to your inbox you can subscribe for free here).

Vern has been involved in financial planning since 1986. In 1999, Personal Investor magazine ranked Vern as one of Australia's Top 50 financial planners. His previous firm, Gowdie Financial Planning, was recognized in 2004, 2005, 2006 & 2007, by Independent Financial Adviser (IFA) magazine as one of the top 5 financial planning firms in Australia.

Vern has been writing his 'Big Picture' column for regional newspapers since 2005 and has been a commentator on financial matters for Prime Radio talkback. His contrarian views often place him at odds with the financial planning profession. In his leisure time Vern remains active with triathlons and pilates.

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