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Monetary & Fiscal Policies of the Last 4 Years Have Failed: Jim Rogers


In a widely anticipated move, the FOMC announced yesterday that it will extend its "Operation Twist" program through the end of 2012. Launched last fall and previously scheduled to end at the end of this month, Twist is intended to stimulate the economy by lowering long term interest rates. The Fed plans to spend $267 billion on the extension bringing to the total spent shuffling debt maturities to 2/3 of a trillion dollars.

International Investor Jim Rogers thinks the Fed decision is tantamount to an extension of futility. "[It's] more bad news as far as I'm concerned," says the reliably outspoken legend. Rogers isn't even buying the idea that the Fed is limiting itself to Operation Twist, suggesting that the Fed's balance sheet continues to expand despite claims that Twist is cost neutral. "Somebody's creating money somewhere and the only one who can do that is the Federal Reserve."

The issue is less that Fed policy is insane than it is misguided. The Fed acknowledged yesterday that the economy is getting worse in terms of spending and employment. The official growth estimate for 2013 has been cut by 0.5% since April, standing at 1.9 - 2.4%. Keynesian economists advocate the Fed going "all in" on stimulus. Those of the Austrian School see the failure of current programs as an argument for the Fed more or less ceasing operations. What the Fed is doing by splitting the difference is akin to choosing to throw with your mouth so as not to offend either your right or left hand.

The Fed has kept short-term interest rates near zero since 2008 and intends to keep rates there at least through 2014. In addition the Fed has purchased around $2.5 trillion worth of Treasuries and mortgage securities. If there were a kitchen sink, the Fed would have tossed it at a bank in hopes it would lend it to a homebuilder.

A free marketeer to the bone, Rogers is horrified by the inflationary implications of endlessly debasing our currency. Whether or not inflation exists it's impossible to dispute the root of Rogers' main beef. "None of this has worked... for four years all of the policies that they've been trying have failed. Why would somebody try to do the same old thing when the policy keeps failing?"

Until Bernanke or a new Administration has an answer to that question, the economic recovery will satisfy no one. In the meantime, Rogers says own real assets.

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