{"id":17425,"date":"2016-06-22T14:12:49","date_gmt":"2016-06-22T21:12:49","guid":{"rendered":"https:\/\/goldcopreciousmetals.com\/?p=17425"},"modified":"2026-01-18T19:13:16","modified_gmt":"2026-01-19T03:13:16","slug":"next-recession-fed-will-little-room-maneuver","status":"publish","type":"post","link":"https:\/\/goldco.com\/next-recession-fed-will-little-room-maneuver\/","title":{"rendered":"In Our Next Recession Fed Will Have Little Room to Maneuver"},"content":{"rendered":"<p>To curb the worst of the Great Recession in 2008, the U.S. Federal Reserve Bank had to resort to extraordinary measures. In the <a href=\"http:\/\/www.federalreservehistory.org\/Period\/Essay\/15\" target=\"_blank\" rel=\"noopener noreferrer\">lingo of the Fed<\/a>, they embarked upon an \u201cunprecedented monetary accommodation\u201d and, at least to a certain extent, succeeded in preventing the collapse of U.S. credit markets. Our economy recovered, although in some aspects, like employment and wages, that recovery was maddeningly and painfully slow.<\/p>\n<p>The aftermath of the greatest recession in recent memory was certainly bad enough, despite the Fed\u2019s unprecedented accommodation and, since employment is one of the Federal Reserve\u2019s core considerations, that accommodation dragged on for years and years. But, like any junkie getting a supply of high powered drugs, American business soon became hooked on cheap cash. The dependency was so dysfunctional that some companies would borrow money from the Fed and use it to buy back their own stock. That practice introduced a kind of phony growth to the stock market, the effects of which only began to <a href=\"http:\/\/www.businessinsider.com\/q1-sp-500-earnings-growth-turns-positive-2015-5\" target=\"_blank\" rel=\"noopener noreferrer\">moderate in late 2014 and 2015<\/a>.<\/p>\n<h3><strong>In a Tight Corner<\/strong><\/h3>\n<p>The problem the Federal Reserve faces today is obvious. After being \u201caccommodating\u201d for so long, if the Fed now raises interest rates many companies that are leveraged up to their collective eyeballs may go under. So far the Fed\u2019s found excuse after excuse to forestall raising rates. First it was layoffs and weakness in the oil industry; now an ugly May jobs report and the closely watched Brexit referendum to decide if the UK will stay in the European Union have kept the Fed\u2019s finger off the rate trigger.<\/p>\n<h3><strong>What About Next Time?<\/strong><\/h3>\n<p>The problem with a decades-long easy money policy is the Fed now has few tools to address the next recession\u2014and there will be another, some say it\u2019s <a href=\"http:\/\/www.cnbc.com\/2016\/06\/21\/the-next-recession-is-already-here-and-there-isnt-much-the-fed-can-do-commentary.html\">already here<\/a>. Since cheap money has become the norm, cash injections no longer stimulate the economy. That leaves the Fed with few tools to meet the next crisis which, in an ironic twist, the Fed itself helped create!<\/p>\n<h3><strong>Throwing Money at Business<\/strong><\/h3>\n<p>One tool the Fed has left is called <a href=\"https:\/\/en.wikipedia.org\/wiki\/Quantitative_easing\" target=\"_blank\" rel=\"noopener noreferrer\">Quantitative Easing<\/a>, or QE. Big companies, like Microsoft, issue bonds at ultra-low interest rates and the Fed buys them. The idea is that companies then use that money to build new factories and hire workers. But in 2009, that\u2019s not what happened. Companies simply <a href=\"http:\/\/www.nytimes.com\/2010\/10\/04\/business\/04borrow.html\" target=\"_blank\" rel=\"noopener noreferrer\">stockpiled the cash<\/a>, sometimes in tax shelter countries like Ireland, until the economy improved.<\/p>\n<h3><strong>Helicopter Money Won&#8217;t Fly<\/strong><\/h3>\n<p>This phrase harkens back to the days when radio or television stations would \u00a0dump a bucket of money out of a helicopter as a promotional stunt. Since giving money to big corporations hasn\u2019t worked, the reasoning behind so-called &#8220;helicopter money&#8221; is that government\u00a0<a href=\"http:\/\/money.cnn.com\/2016\/06\/21\/news\/economy\/janet-yellen-fed-congress-tools\/index.html?iid=hp-stack-dom\" target=\"_blank\" rel=\"noopener noreferrer\">giving that cash to average Americans<\/a> would stimulate consumer spending,\u00a0hence the economy. After the failure of QE, it\u2019s easy to understand how the idea of helicopter money would be appealing to the Fed. The problem with helicopter money is that average folk are likely to do the same thing as Microsoft and simply bank the cash as a hedge against economic uncertainty.<\/p>\n<h3><strong>All Bad Choices<\/strong><\/h3>\n<p>Looking at the Fed\u2019s available options it quickly becomes clear that our central bank is running low on interventionist options. What\u2019s worse is that it\u2019s the Fed\u2019s previous interventionist policies that have set up the next recession to be even longer and more severe than the last one. If the repercussions weren\u2019t so serious it would be funny.<\/p>\n<p>The current volatility in global markets and the limited options the Fed has for dealing with a recession means that chasing returns in the current market is simply folly. If you haven\u2019t rebalanced your portfolio recently today would be the day. The Brexit vote is tomorrow and waiting to reduce your exposure to stocks or increase your holding of liquid hard assets like <a href=\"https:\/\/goldco.com\/precious-metals-ira\/gold-ira\">gold and silver<\/a> could be a costly mistake.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>As we look down the barrel of an oncoming recession, misguided Fed policies now mean we have few options left to save our economy.<\/p>\n","protected":false},"author":13,"featured_media":32591,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[208],"tags":[233,276,230,251,491,241,300,442],"class_list":["post-17425","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-federal-reserve","tag-economy","tag-fed","tag-gold","tag-money","tag-quantitative-easing","tag-recession","tag-silver","tag-uk"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v26.8 (Yoast SEO v26.8) - https:\/\/yoast.com\/product\/yoast-seo-premium-wordpress\/ -->\n<title>In Our Next Recession Fed Will Have Little Room to Maneuver<\/title>\n<meta name=\"description\" content=\"As we look down the barrel of an oncoming recession, misguided Fed policies now mean we have few options left to save our economy.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/goldco.com\/next-recession-fed-will-little-room-maneuver\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"In Our Next Recession Fed Will Have Little Room to Maneuver &#8211; 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