What happened at Jackson Hole?
Last week, Jackson Hole played host to the annual Federal Reserve conference. At the end of every August, economists and bankers meet at a symposium organized by the Federal Reserve Bank of Kansas City.
The attendees present papers, discuss current economic issues, but mostly they wait to hear what the Fed chairman has to say.
Past conferences have given us a glimpse as to which direction the Federal Reserve was leaning economically. In 2010, Ben Bernanke hinted that he might begin a second round of bond purchases, a policy known as quantitative easing. The Fed then followed up three months later by doing just that.
This year was no exception. At the conference, Mr. Bernanke discussed the likelihood of another round of bond buying, only this time one that would be open ended. The U.S. economy "is far from satisfactory," the chairman stated as he laid out a plan to continue to purchase bonds until the Fed deems that the situation has corrected itself.
Some presidents of the regional Federal Reserve have come out in favor of the open-ended strategy for bond buying, with some suggesting the program begin immediately. However, others are in favor of a program that ties bond purchasing to meeting key economic benchmarks.
Rather than tying themselves down to a stated amount of bonds purchased for a stated period of time, the Fed has decided it is in the country's best interest to continue to spend until our situation improves. Bernanke feels this is necessary in order to improve our job numbers, which he called a "grave concern."
As seen in the past, stocks and treasuries jumped in response to the chairman's recent stance on continued purchases, most likely tied to hopes the Fed would take action as soon as its next meeting, Sept. 12-13.
I cannot disagree that this strategy has worked before. Yes, the economy has improved from its lows back in 2008, and yes, a lot of that improvement is due in part to the decisive actions of the Fed.
However, its having worked in the past should not give the Fed carte blanche to spend unlimited amounts again and perhaps develop a dangerous spending habit. Our country is dependent on debt, and it’s starting to look like an addiction. I’m worried that, like addictions, the longer we’re hooked on debt spending, the more we need.
Also like any addiction, the hardest part is quitting. Quitting when we’ve been addicted for so long can be an ugly process.
I will keep my eye out for the start of rehab.
Editor's note: Joe Wirbick will be on vacation next week. His posts will resume the week of Sept. 17.
Joe Wirbick is president of the Lancaster financial services firm Sequinox. Joe specializes in retirement planning and distribution. This allows him to concentrate on developing strategies that help address the unique issues that confront retirees and those approaching retirement.