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6 Government "Fixes" That Came Too Late to Matter

Government rarely if ever prevents financial crises.

By the time it gets around to action, the damage is done. But that doesn't stop them from trying to fix what's already occurred.

Examples are plentiful.

1) Consider the most well-known stock market crash in history.

Government is the ultimate crowd, every decision being made by committee. It is always acting on the last trend, the one that is already over. (For example, the Federal government passed securities laws to prevent the 1929 crash...in 1934.)

The Elliott Wave Theorist, Nov. 1991

2) Likewise, the Federal Reserve was created in 1913 in response to the Panic of 1907.

Consider a few instances from the more recent past.

3) Robert Prechter notes that "the Monetary Control Act passed in December 1980 [and] was designed to deal with the runaway inflation that had raged for a decade and had ended nearly a year before."

4) In the second edition of Conquer the Crash, Prechter writes, "Don't rely on government 'watchdogs.' They rarely foresee disasters. U.S. regulators did not anticipate the Savings & Loan industry collapse. Subsequent investigation revealed several years of immense corruption." Congress reacted to the savings and loan crisis by passing the Financial Institutions Reform, Recovery and Enforcement Act of 1989.

5) In response to the 2007-09 financial crisis, the Dodd-Frank Wall Street Reform and Consumer Protection Act was passed by Congress, and signed into federal law by President Obama on July 21, 2010.

Once again, the government brought sweeping financial regulation after a crisis.

The new law [Dodd-Frank] means that consumers who were burned by financial products they thought were safe “may finally get the comfort of knowing it won’t happen again.” ... Economists will never mention or possibly even notice that in real time, they failed to recognize the crisis until it was extremely well developed.

The Elliott Wave Financial Forecast, August 2010

6) And just recently, the federal government waited until the last minute (and beyond) to address the fiscal cliff. Yet, for more than a year, the government had known about the mandatory 2013 tax increases and spending cuts. After all, lawmakers imposed the automatic financial measures with the Budget Control Act of 2011.

Prechter says a huge price will be paid for excessive borrowing and spending. And that price is summed up in one word: deflation.

The total amount of dollar-denominated credit as a percentage of annual GDP peaked in 1929 at about 210%, while recently it’s been as high as 370%. This is a lot more credit today relative to the country’s ability to pay it off. It’s an extremely dicey situation.

The Elliott Wave Theorist, October 2012