Call (866) 878-2881 to learn more about our investment strategies.

Commentaries & market updates.

Greenspan’s Soft Patch Turns to Quicksand

Greenspan’s Soft Patch Turns to Quicksand

Today, by edging interest rates up another highly anticipated, yet virtually meaningless, 25 basis points, Alan Greenspan continued his too little, too late “measured” strategy. Within its statement the Fed continues to paint an unwarranted rosy picture of the prospects for the U.S. economy, and continues to hang its hat on dubious government measures of productivity. The Fed gave no indication that its pace of “measured” rate hikes would change, but acknowledged, in gross understatement, that current monetary policy remains accommodative.

As expected, Greenspan also cast his lot with the many analysts who lay the blame for the current economic slow-down on higher oil prices. (It is ironic that many of the same pundits had recently maintained that oil prices would not effect the economy (see my commentary of June 22 titled “Today the U.S. economy is as dependant as ever on oil’). Yes, Greenspan, et al are now correct that higher oil prices will hurt the U.S. economy (they will eventually be devastating as prices move much higher), but they are wrong in the assertion that those prices are responsible for the current doldrums. Greenspan’s “soft patch??? (which may turn out to be quick sand) has in fact very little to do with higher oil prices, which merely provide a convenient scapegoat.

By pointing its finger at oil, the Fed is able to attribute the current weakness to temporary factors that they can claim to be beyond its control. True, $45 oil may in fact be temporary, but not because prices are going to fall, but because they are going to rise. Since higher oil prices are in fact largely created by a weaker dollar, they are very much the result of current Fed policy. The “oil card” allows the Fed to deflect attention from the real culprits, which are excessive debt and insufficient income growth. These problems, far from being transitory, are systemic, and will only worsen, especially as interest rates rise.

This “blame it on oil” strategy not only allows the Fed to avoid addressing the real problems, it permits it to avoid exposing its current predicament, which is its inability to raise interest rates to rein in inflation without precipitating a severe recession.

Sign up for our Free Reports & Market Updates.

You are now leaving

We are providing a link to the third party's website solely as a convenience to you, because we believe that website may provide useful content. We do not control the content on the third-party website; we do not guarantee any claims made on it; nor do we endorse the website, its sponsor, or any of the content, policies, activities, products or services offered on the website or by any advertiser on the site. We disclaim any responsibility for the website’s performance or interaction with your computer, its security and privacy policies and practices, and any consequences that may result from visiting it. The link is not intended to create an offer to sell, or a solicitation of an offer to buy or hold, any securities.

You will be redirected to
in 3 seconds...

Click the link above to continue or CANCEL