The Fed Relapses

It is obvious that the government is willing to stand behind its claims of doing whatever it takes to get the economy moving again -- even if it means destroying our entire financial structure in the future.

Many market commentators are overly excited about the recent moves by the Federal Reserve. This is a green light to the new administration that the Fed is ready and willing to back up whatever financial stimulus is in the works. The moves may provide some intermediate-term stimulus; however, if these recent moves do take hold, Bernanke is going to re-create the same exact bubble that Greenspan did.

If you're wondering why the Fed is panicking and slashing interest rates between 0.0% and 0.25%, you don't have to look any further than the recent consumer price index report, which revealed that consumer prices plunged 1.7% in November alone. If you imagine keeping up that pace of decline for a year, it would equal 20% deflation, which is twice the drop of consumer prices during the Great Depression.

Now I am no economist, but I can figure out that we didn't get into this situation because interest rates were too high -- we got into this situation because personal and corporate debt is massive and everyone is scrambling to cut back and reorganize. Meanwhile, the Fed is trying to convince consumers and businesses to go right back into the same scenario that got us into this mess by enticing us to start spending more money and go into more debt.

Even though the Fed is doing everything it can to stimulate spending, financial institutions are not willing to lend because they know that there are still a massive amount of problems floating around out there -- and they are still trying to clear up the mess they currently are in.

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At time of publication, Manning had no positions in the funds mentioned, although holdings can change at any time.

Mark Manning, AAMS, is an Accredited Asset Management Specialist and Registered Investment Advisor with Butler, Wick & Co., where he specializes in wealth management. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Manning appreciates your feedback; click here to send him an email.