"There Will Be Consequences" - Did The Fed Over-React To A "Natural Disaster"? | WHAT REALLY HAPPENED

"There Will Be Consequences" - Did The Fed Over-React To A "Natural Disaster"?

Authored by Lance Roberts via RealInvestmentAdvice.com,

Is it possible the Fed over-reacted to a natural disaster?

There are two different types of “recessionary” events that occur throughout history. The first is a “business cycle” recession, which happens with some regularity as excesses build up in the economy. These cycles generally take 12-18 months to complete as those excesses are reversed.

Then there are “event-driven” recessions that can occur from “natural disasters.” These are generally much shorter in duration and can be sector specific. One such event was the Japanese earthquake/tsunami in 2011, which led to a temporary manufacturing recession.

Understanding the type of recessionary cycle you are fighting is essential in ensuring the Government applies the correct monetary and fiscal response. As with any illness, the application of the wrong medication can lead to unintended consequences.

There are growing expectations of the COVID-19 economic shutdown, and the subsequent recessionary backlash will be very short-lived. The assumption is that if the economy reopens, the activity will resume, and the economy will quickly regain its footing.

If such an outcome is indeed the case, has the Fed applied the wrong “medication” to cure the economic patient?

Webmaster's Commentary: 

The short answer appears to be, "HELL, YES!!"

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