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Fed Looks Foolish

Last week, I wrote about the Fed's recent criticism of the U.S. government's handling of the housing crisis, a crisis that still persists and may only be getting worse ("Fed Cries Foul?").

According to a number of news sources, the Fed is considering taking unprecedented action in the housing markets by buying back more housing bad debt. And they are pressuring the government to step up efforts to loosen lending restrictions for borrowers and doing loan write-downs for owners who owe more than their house is worth through Freddie and Fannie.

This week, some new revelations about the Fed's outlook during the run up to the housing crisis in 2006 were released in the form of that year's meeting transcripts—and the Fed looks foolish.

According to The New York Times, "Meeting every six weeks to discuss the health of the nation's economy, [Fed officials] gave little credence to the possibility that the faltering housing market would weigh on the broader economy, according to transcripts that the Fed released Thursday. Instead they continued to tell one another throughout 2006 that the greatest danger was inflation — the possibility that the economy would grow too fast."

Additionally, the Fed poked fun at the growing concern by builders to move housing inventory, "The officials laughed about the cars that builders were offering as signing bonuses, and about efforts to make empty homes look occupied. They joked about one builder who said that inventory was 'rising through the roof.'"

The implication of the transcripts are clear: the Fed had no clue that the floor was about to fall out from underneath them and the U.S. economy.

So, this begs the question, why do they think they're now qualified to speak in the housing market?

In 2006, there were plenty of people with enough common sense to know that the housing crisis was going to be bad for the economy, but these were generally considered fringe economists or conspiracy theorists because they challenged the status quo.

Rather than listen, the Fed drank its own Kool-Aid on the fundamentals of the economic system, and the safety net that was supposed to be collateralized debt.

Today, many people, such as my friend and now Rich Dad blogger, Richard Duncan, author of The Dollar Crisis and The Corruption of Capitalism, are sounding the alarm about the coming collapse of the dollar that may result from the Fed's continued call for printing more money and inflating the economy through debt.

Yet, today, the Fed continues to drink their Kool-Aid and move forward with blind faith — much like they did in 2006, when one Fed member stated upon Chairman Greenspan's departure, "It's fitting for Chairman Greenspan to leave office with the economy in such solid shape. The situation you're handing off to your successor [Chairman Bernanke] is a lot like a tennis racquet with a gigantic sweet spot."

Those must have been some pretty cheap strings.

The point of all this? I simply want you to understand that the so-called experts can not only be wrong, but they can be dangerously wrong. My hope is that you don't drink Kool-Aid, whether it's served by the Fed, or even myself, but that you increase your own financial literacy.

The mission of the Rich Dad Company is to equip you to think for yourself. We provide financial education that helps you do your research, gather all the information, analyze that information, and make your own informed decision.

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This is why I rarely tell people what to do, but instead simply explain what I'm doing. I never want you to follow my advice blindly. I want you to think for yourself. What works for me may not work for you.

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