Economic Recovery an Illusion

The so called “economic recovery” is an illusion the Federal Reserve is creating by buying up hundreds of billions of dollars worth of financial assets that nobody wants.
The Fed is basically propping up our ailing banking system and keeping our economy going by printing money, Wall Street Journal columnist Peter Eavis pointed out in a “Heard on the Street” column for September 23, 2009. Eavis thinks this is what is fueling the recent increase in stock prices.
The Fed has spent $850 billion worth of mortgage backed securities issued by entities like Freddie Mac and Fannie Mae about 80% of such securities, according to Eavis. The Fed is doing this to keep housing and real estate prices artificially high and prevent the real estate market from collapsing. This keeps housing prices artificially high and prevents a total meltdown of the rest of the market.
These policies create the illusion of an “economic recovery” and lay the ground work for a much bigger disaster down the road. The Fed is financing its purchases by increasing the money supply, every time the Fed buys securities it puts more money into circulation. This will create inflation and drive down the value and purchasing power of the dollar, something that’s already happening.
Since there seems to be an almost unlimited amount of bad debt out there because of bad banking practices. The Fed could conceivably go on buying up the bad debt forever because there is an inexhaustible supply of it. Once the Fed has bought up all the mortgage debt it can buy up all the credit card debt and car loans and so on.
This scheme will only work if markets and investors go along with it, Eavis noted. If markets don’t go along the whole thing will collapse.
To make matters worse the Fed is rewarding lousy practices if bankers don’t do their homework and loan money to people it can’t or won’t pay it back. All they have to do is run to the Fed for a bail out. If that wasn’t horrendous enough, financial institutions might deliberately take on bad debt in hopes of getting an infusion of Fed cash.
The worst case scenario from this stupidity as I’ve pointed out before is hyperinflation the sudden collapse of the purchasing power of the US dollar. Another possibility is a partial or total collapse of the banking system and the Fed itself.
What’s particularly disturbing is that the Fed is engaging in exactly the kind of activities we send other bankers and investment brokers to jail for it. If bank executives deliberately went out and bought up millions of bad loans they knew would never be paid they would be investigated by the FDIC and probably prosecuted. The Fed does it and Bernard Bernanke is hailed as a genius.
Worse the Fed like any pyramid scam con artist is telling everybody that everything is fine so they can just keep investing their money. Sooner or later of course the house of cards will collapse and everybody in this country will be hurt.

http://online.wsj.com/article/SB125373822753135165.html