The Fed Feedback Loop

by James Rickards
Daily Reckoning

In a word, the Fed has failed in its mission to restore robust growth to the U.S. economy. That failure has laid the foundation for the next global monetary crisis.

This failure was inevitable. The reason is that the problems in the economy are structural. They have to do with taxation, regulation, demographics and other factors beyond the Fed’s mandate. The Fed’s solutions are monetary. A policymaker cannot solve structural problems with monetary tools.

Since structural solutions are not on the horizon due to political gridlock, the U.S. economy will remain stuck in a low-growth, Japanese style pattern indefinitely. Without structural change, this pattern will persist for decades as it has in Japan already. This weak growth scenario will be punctuated with occasional technical recessions, and exhibit persistent deflationary tendencies.

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