Can Fed’s Operation Twist Reverse Sliding Economy?

For every beneficiary that benefits from whatever the Fed does, there's a long list of victims. Savers, once again, will be penalized by the Fed's actions in the form of depressed yields on bank CDs, savings accounts and money market funds.

On the other hand, borrowers will benefit, but the extension of cheap credit has yet to revive job growth or the broader economy.

The other victims of the Fed's policies are to-be-announced or TBA. They will most likely be investors or traders who've been riding on the coattails of low rates by making risky bets. Unfortunately, this is the type of perilous behavior the Fed has not discouraged.

It's a paradox the Federal Reserve was created in response to the financial panic of 1907. Its policies, which even its own board members, are questioning, should not promote bubbles or meltdowns, but avoid them. The Fed's principal duties are to maintain stability within the financial system, to supervise and regulate banks, to conduct the nation's monetary policy and to provide financial services to depository institutions and the U.S. government.  Have they been forgotten?

Don't be fooled by the Federal Reserve's website address which contains .gov. Contrary to what many people think, the Federal Reserve is actually a private bank and not a federal agency.  It receives no appropriated funds from Congress. Why is that important? Because it means the Fed, like any corporation, can be forced into dissolution or outright bankruptcy due to poor decisions.

Finally, it's important to remember the current Fed is actually the third central-banking experiment in the U.S. Its predecessors were the First Bank of the United States (1791-1811) and Second Bank of the United States (1816-1836). Put another way, the history of central banks is shaky, which rightly makes us question their future viability.

The prospect of investing in a world with a severely weakened or impotent Federal Reserve comes as no surprise to ETFguide's subscribers. It's a theme we've touched on more than once. 

In the end, ETFguide's Profit Strategy ETF Newsletter continues to advocate a fiercely independent view of world events, financial markets and the proper allocation of money. Ultimately, building an investment strategy that can perform during any kind of market climate is a good start.