April 5, 2001

Fire the Fed!

Now that Alan Greenspan and the rest of the Federal Reserve board have been thrown off their high horse, they're finally admitting that they were dead wrong about the health of the economy. So much for that "soft landing" talk. With American workers ending up on the unemployment lines by the hundreds of thousands, it's the members of the Fed that should be facing job insecurity. How could they not see this coming? They're responsible!

The Fed has "engineered" this economy smack into a recession. The interest rate cuts haven't propped up the economy or even helped boost the stock markets. Instead, investors saw the cuts for what they really were -- the Fed tacitly admitting that the economy was already heading toward recession. And, most smart investors recognize that the Fed can't wave a magic wand and increase company earnings and make stock prices less over-valued.

Along with a wave of selling in the stock market and stock prices plummeting to three-year lows, companies are laying off employees, cutting back on production, and preparing for the worst. Initial jobless claims this week ballooned to 383,000, their highest level since July 1998. Since Dec. 1, 2000, companies have announced plans to layoff over a half million employees, according to outplacement firm Challenger, Gray, and Christmas.

If the rate cuts have done anything, they've just made it easier for already bloated companies to pile on more debt. This only postpones the inevitable -- companies will take on more and more debt to stay afloat until investors sink their stock price and it becomes impossible for them to survive. Companies have more cash in the short-term, but in the long run, they're heading for disaster. That's why today's rally won't last -- it's just a bear trap that will lure in bulls and eat them alive.

Not only has the Fed failed to engineer a soft landing, they've managed to facilitate the crash.

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