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John Mauldin: The Fed Is Leading Us to Economic Hell

John Mauldin: The Fed Is Leading Us to Economic Hell

The Fed argues that low rates have worked. The economy emerged from recession. Unemployment drifted back down. “Yay for us,” said the Fed.

Don’t buy that statistical economic garbage. The economy recovered in spite of Fed policy, not because of it. The economy recovered because business owners, entrepreneurs, and workers rolled up their sleeves and made things happen.

It involved a lot of pain: layoffs, asset sales, lost customers, and more. But the hard-working citizens of this country slowly and painfully pulled themselves out of the nosedive.

Those are the people who deserve the credit, not the Fed. Keeping rates at artificially low levels did nothing other than push our economy into the mother of all corners.

Look where we are now.

The next recession means rates will go below zero

The US economy is going to suffer another recession in the not-too-distant future. So, for lack of anything else to do, the Fed is preparing to send rates below zero when the economy next needs goosing. That was clearly the message from Jackson Hole.

What then? Here is the most likely scenario I think we are facing—and you are not going to like it.

We are going to go into the next recession with interest rates still stuck in the sub-1% range. This doesn’t give the Fed much ammunition.

Economists (who could certainly qualify as High Priests) have done studies on recent Fed policies. These show that quantitative easing didn’t really do anything, other than maybe goose the stock market.

There is also no data that shows any positive benefit from the so-called wealth effect, which was all the academic rage at the beginning of this process. Forget the wealth effect. The fact is that when the stock market goes up, it does not trickle down to the average guy on Main Street.

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