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| Curent Advice |
The Federal Reserve’s aggressive bail out of the monetary system will begin paying dividends soon with a strong rally on Wall Street. If history is any guide, when the Fed turns on the spigot, the economy eventually turns around. An early indicator is when the stock market rallies. In addition, both real M2 and the S&P 500 Index are leading indicators, according to the Conference Board.
What should the government be doing? It should move in the opposite direction, toward true deregulation à la Reagan. Remember, it was the Federal Reserve and the overreaching Congress that caused this debacle in the first place. Under the false fear that the dynamic United States was going the way of a static Japan, Greenspan’s Fed cut rates far below the natural rate to 1% in 2004.
Last fall, it ousted its chief executive, and in March named JPMorgan Chase veteran Donald Layton to head the giant discount brokerage firm, and appointed Robert Druskin, former chief operating officer at Citigroup Inc., to the brokerage firm’s board to run its newly created finance and risk oversight committee.
Eastern Europe is booming because most of this part of the world has adopted a flat income tax (Russia’s is 13%), and continues to deregulate and privatize government-controlled industries.
Once again, the Fed has lowered interest rates below the natural rate of interest, which spells another asset boom some time down the road. In real terms, after price inflation, interest rates are negative.
Supply concerns pushed crude oil prices above $115 a barrel. And gold, now around $943 an ounce, has started to make a comeback. With the Fed aggressively cutting rates and injecting new inflation into the monetary system, it won’t be long before gold is back up above $1,000.
Wall Street is looking better recently in anticipation that the Federal Reserve’s aggressive, loose-money policy will pay dividends in the economy later this year.
Last month, I spoke for the first time at Yale University about my book "EconoPower." Arriving on campus, I couldn’t help but think of my friend William F. Buckley, Jr., who died in late February at the age of 82.
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