From our
Friends at Elliott Wave International. This week’s
featured article.
By Elliott Wave International
Federal Reserve Chairman Ben Bernanke really means it this
time.
He will
rescue the economy.
Ben S. Bernanke for the first time pledged
that the Federal Reserve will buy bonds until the economy gets closer to his goals ... . The central bank
yesterday announced its third round of large-scale asset purchases
since 2008, with the difference that it didn't set
any limit on the ultimate amount it would buy
or the duration of the program. ... Bernanke is "going to fight and fight until he sees
a real improvement in the economy,"
said a co-head of global economics research at [a major bank]."
He believes quantitative easing
can help the economy, so he'll just
keep at it until there's
a real turn in the economy."
Bloomberg, Sept.
14
But we've all heard the definition of insanity: doing the same thing over and over and expecting
a different result.
Why should
we think QE-3 will work when
the previous two failed? (Don't think they failed?
Then ask yourself why we need a third
one.)
Granted, this
round of quantitative easing appears
open-ended. And it includes a pledge
to purchase $40 billion a month
in mortgage-backed securities.
But high interest rates don't
explain the sluggish residential real estate market. Home purchases are slow
for the same reason that many business owners haven't expanded. A Sept. 12 CNNMoney
article quotes a former Fed economist:
"Businesses
are not hesitant to invest
and hire because interest rates are too high - they're hesitant because of the uncertainty surrounding their future
prospects."
When the August jobless rate fell to 8.1%, the widely reported reason was because
so many people gave up looking for work. U.S. business
startups are at record lows.
Food stamp rolls recently skyrocketed. Several U.S. municipalities are
declaring bankruptcy.
Ratings service Moody's just warned
of a possible U.S. downgrade. And the national debt just surpassed
$16 trillion.
Monetary policy
will not fix what ails the economy. Robert Prechter explains:
Monetarist theory
holds that each new dollar created can support many new dollars' worth of IOUs throughout the banking system through re-depositing and re-lending, a process known as the "multiplier effect"....
Every aspect of this theory is flawed,
from the assumption that credit is
fundamentally good for the economy
and should always expand to the bedrock theoretical assumption that human society is a machine where physics equations apply. Waves of social mood have no place in monetarist
theory, but they can play havoc
with the monetarists' supposed machine when they reach extremes
or undergo unforeseen (what other kind
is there?) reversals.
The Elliott Wave Theorist, September
2011
Few people foresee a major economic
reversal just ahead. The fact that Fed policy has become "QE Infinity" (it already has a nickname) tells
us that something is badly wrong
with the economy. And that something is a massive
credit bubble
Monetary policy
cannot make the global credit bubble simply vanish. Only a deflationary crash can do that. The chart below reveals
why.
 
Look how fast the debt deflation unfolded in 1929-1932.
Learn what EWI expects regarding today's
much bigger
credit bubble.
See more charts and read insightful commentary that will help you position yourself now for what's to come next.
The herd keeps looking
for intervention by government entities
to aid their investing decisions. It's time to break away from the herd and start investing independently. EWI is here to help ...
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