"The American Republic will endure until the day Congress discovers that it can bribe the public with the public's money."
Alexis De Tocqueville, Democracy in America (1835)
Last week the economic central planners at the Federal Open Market Committee (FOMC) of the Federal Reserve Bank issued a statement tempering their previously optimistic forecast for recovery from the “Great Recession”. In its statement, the Ben Bernanke-led FOMC indicated that the weakening recovery has made it necessary for the Fed to keep interest rates at “exceptionally low levels…for an extended period”. Additionally, the FOMC stated it will change course. Instead of shrinking its historic $2 trillion balance sheet, the Fed will reinvest money from maturing mortgage bonds to buy up more assets (notably government treasury bonds). All of this will be done in an effort further to stimulate the markets to recovery.
No one doubts that something needs to be done to reverse the downward spiral that our economy is once again taking. After all, consumer confidence is down, factory orders are down, the real unemployment rate which takes into account discouraged and underemployed workers is still north of 16 percent, Food stamp usage has skyrocketed to a record high of 40.2 million recipients, and Bank repossessions and foreclosures are still a massive problem. No, nobody doubts that something needs to be done, but that something should not be more of the same that got us into this mess in the first place and is keeping us in it in the second.
Now, I would not question the intelligence of anybody on the FOMC. Bernanke and his comrades are smart folks. They all have fancy degrees and have spent years on Wall Street and/or in the government cutting their teeth becoming seasoned economists and financiers. They certainly are not wet behind the ears as is said in the business. So then if it is'nt mental ability maybe it's motives that drive the FOMC members to pursue what appear to the reasonable layman as an insane policy. Let’s analyze the situation further by looking at historical examples.