This will appear in the Farmerville Gazette, Farmerville, Louisiana next week.

“The sky is falling, the sky is falling,” said Chicken Little. Remember that story from a bygone era. If anyone has been watching the stock market lately you have been hearing the same thing. The market has had a very poor showing; especially when viewed in relationship to the previous five months. Not to worry though. The correction we are in is a natural phenomenon with the American stock market and for that matter any stock market that operates under a true market economy.
The one thing that has been added to the economic equation and deviates from a pure market economy is the involvement of the Federal Government to regulate the money and keep interest rates low. While this has helped expand a very slow growing economy there is only so much that the Federal Government can do before the actions ultimately become detrimental to the growth of the country. How the government removes regulations and how the changes are communicated will determine how the stock market responds. Today, the mere suggestion of removing certain Central Bank, the Federal Reserve, support of lower interest rates sends Wall Street into a tail spin and the market takes huge losses. While working America may see no real problem to a stock slide, the truth is that stocks are sold by companies to raise money to fund expansion. If stock prices are low then adequate money is not available to fund factory and infrastructure expansion. This will then slow our recession recovery and aid to keeping the American growth low.
Today the “Fed” is buying bonds and by doing this it is artificially keeping interest rates low. These low rates are helping to fuel a slowly growing economy. Unfortunately there is a down side. The bonds are paid in many cases by printing more money. This can eventually lead to inflation and interest rates could soar so it is important for the Fed to stop buying bonds at some point in the future. Regardless of what happens, interest rates will be going up. When the Fed stops buying bonds this action will also lead to higher interest rates but the amount of interest increases and over what period of time the increases will occur is not fully understood. What is understood is that the current bond purchases of eighty-five billion dollars a month must stop and this must stop at a point in time that the economic recovery can continue to fuel the growth of the country.
If the Federal Reserve can slow the bond purchases at just the right time and not stop the purchases suddenly but instead slowly reduce the bond procurement, we may just be able to transition toward a pure market economy once again without disturbing the economic recovery. If this can happen then the Federal Reserve needs to be praised as a prodigy of the economic world and a model for a marketing economy in trouble.
There is one concern with the actions of the Federal Reserve. The current Federal Reserve Chairman is scheduled to leave office early next year. If his replacement does not follow the current course of federal monetary policy, all bets are off and it will remain to be seen how the economy will respond to a new strategy.
Next week we will be celebrating one of my favorite three holidays, the 4th of July. In the world of commentaries on both television and radio there is occasionally that one patriotic observation that seems to stand out in praise of our great nation. Next week I will share one of these with you. For you that will not be with us next week, Happy Independence Day.


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