Tags: Wiedemer | Fed | US | Recession

Wiedemer: Further Fed Easing Won't Prevent US Recession

By    |   Thursday, 12 Jul 2012 05:59 PM

The Federal Reserve will probably move to stimulate the economy via easing measures this year, though such policy tools can't guarantee that the country won't slide into recession, says Robert Wiedemer, financial commentator and best-selling author of "Aftershock."

U.S. recovery remains tepid, with consumer confidence waning, personal spending flat and job creation minimal, prompting talk the Federal Reserve will roll out a fresh round of bond buybacks from banks, a stimulus took known as quantitative easing (QE).

Quantitative easing seeks to spur recovery and encourage hiring by injecting massive amounts of liquidity into the economy that lowers long-term interest rates.

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The Fed has rolled out two rounds since the downturn, pumping $2.3 trillion into the economy in the process although a third round — possible by September if the economy doesn't improve — would likely aim to stave off decline by acting as a stopper to a waning economy.

Nothing is guaranteed even with quantitative easing, dubbed by many as printing money out of thin air, Wiedemer says.

"Will printing money keep us from going into recession? No, I don’t think so necessarily. Printing money hasn’t been all that great for the economy," Wiedemer tells Newsmax.TV in an exclusive interview.

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

Past rounds of quantitative easing, known as QE1 and QE2, did pump up the stock market.

But monetary policy tools by their nature produce diminishing returns, meaning a third round will pack less of a punch.

Plus the policy does nothing to lower debts and narrow deficits.

"It improves everybody’s willingness to spend and invest, so there are some benefits to the economy from just pushing up the market, but generally QE hasn’t been that great on fundamentals of the economy. I think we certainly could slide into recession. We’re certainly on a glide path toward recession. QE might postpone that a bit, but ultimately I think we got a big problem."

The Federal Reserve must adhere to a dual mandate of keeping prices stable and unemployment rates optimal.

Weekly initial jobless claims have fallen lately, but monthly jobs reports confirm that hiring remains at bay, which could prompt the Federal Reserve to comply with its mandate, though only if the economy consistently shows signs of cooling.

"I think the Fed wants to be pretty convinced that the economy is heading down. We’re not in a recession; we may be heading for that, but we’re certainly not there yet," Wiedemer says.

"I know the stock market wants it, but the Fed has to be a little bit worried about printing all this money and creating inflation.”

Such uncertainty leaves few safe-haven investment choices.

While U.S. government debt and the dollar have done well amid European uncertainty, fundamentals don't point to a robust economy here that is paying down debts.

Still, there are opportunities out there.

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

"Bonds have done OK. But if I was to recommend a course I would still say that shorter-term bonds will have a little room left to run," says Wiedemer, a managing director of Absolute Investment Management, an investment-advisory firm for individuals with more than $200 million under management.

Gold may be down this year from record highs in 2011 though investors should consider it due to its hedging properties against weakening paper currencies, the dollar especially.

High dividend stocks and Treasury Inflation-Protected Securities, or TIPS, are sound investments as well.

"Who knows what is going to happen over the next month or two. Without QE yes the markets will have problems but I think we’ll get a QE here in the next three to six months."

About Robert Wiedemer
Robert Wiedemer is a managing director of Absolute Investment Management, an investment-advisory firm for individuals with more than $200 million under management. He is a regular contributor to Financial Intelligence Report, the flagship investment newsletter of Newsmax Media. Click Here to read more of his articles. Discover more about his latest book, "Aftershock," by Clicking Here Now.


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