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Do you Believe in Economic Superheroes?
Last week clearly documented that central bankers have a limited ability to positively influence the economy. All of the negative economic news, both on the jobs front and from the global manufacturing sector, illustrates an economy which is sinking. Central banks failed to deliver the short-sighted policy actions that investors currently crave. Schiff believes these developments should provide new reasons for investors and economy watchers to abandon their faith in central bankers as 'super heroes' capable of saving the economy.
Schiff reminds investors that more important than the unemployment rate rising to 8.3% is the labor force participation rate. This is the percentage of healthy working age Americans who actually have jobs or are actively looking for one. The labor force participation rate is at one of the lowest points since women first started working en masse in the 1970's.
The misguided response from politicians and financial pundits is deafening. Many believe that the reason for our now stumbling economy is that not enough stimulation, in the form of quantitative easing or federal deficit spending, has been applied to the economy; or that if the measures of the past few years had not been applied, we would have experienced much weaker economic results. In other words, no matter how bad things are now, defenders of the status quo will always describe how bad things "could have been" if the Fed hadn't stepped in. Schiff highlights how this counterfactual argument gets increasingly threadbare as the years wear on.
Schiff confirms this by explaining, "Rather than admit that its policies have failed, the Fed statement last week gave all indications that it will continue with its current inflationary policy to the bitter end."
Schiff believes that the manipulation of the Fed has prolonged the debt bubble and not allowed the US economy to restructure. Higher interest rates are the cure and they are coming - at which point the Fed will be out of time and options.
Schiff closes with a call to action:
"No matter how often they (the Fed) blow their bugles, our economy will continue to deteriorate until we stop waiting for a savior and instead fight the battle for prosperity ourselves."
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