Late this afternoon, a story appeared on the Dow Jones newswire service relating a speech given by Federal Reserve governor Jeremy Stein. In his prepared remarks he defends QE3 and seems to be strongly arguing for an additional new round of QE4.
I must say that it certainly appears these monetary elites really do believe their own BS. If creating lasting prosperity was this easy, what in the world took mankind so longer to figure it out?
I think the most preposterous of his remarks was his claim that the ultra low interest rate environment being created by the Fed has allowed companies to refinance large portions of their current debt at "cheaper, longer-dated terms". This, he claims, helped strengthen the economy and "was a good thing from a financial stability perspective".
Yes, that is not a misquote.
Anyone who trades the markets for a living will tell you that the Fed's actions have created unprecedented volatility as its actions are intended to counteract the deflationary forces arising from the excessive levels of indebtedness that are swamping over the entirety of the global economy but particularly those economies of the fading West.
Instead of allowing the system to clear, as painful as that will be, the Fed continues to try to entice additional borrowing by forcing down long term interest rates to insanely low levels. This, they claim, is a good thing.
There is however a nice, dirty little secret that Mr. Stein, more than likely inadvertently, let out of the bag. Here is the takeaway quotation....
Research shows "Treasury buying is associated with increases in stock prices, which in turn can have wealth effects on consumption and investment".
There ya have conclusive proof that a major strategy of the Central Bank is to produce enough funny money to jam the stock market higher and by so doing, make consumers feel wealthier as they examine their 401K's and retirement portfolios as well as inducing businesses to expand based on a rising price for their stock.
To hell with the impact that this will have on the middle class and average American citizen over the long term. While they may "feel better" now that the Fed has been successful in creating paper asset inflation among stock shares, they are going to "lose that lovin' feelin" when this same deliberately designed inflation shows up in food and energy prices.
Yes indeed, America thanks you Mr. Stein, you and the rest of your shortsighted fools at the Federal Reserve.
http://news.yahoo.com/feds-stein-backs-qe3-says-policy-remains-effective-004501841--sector.html
Coming from South Africa to London in the 70's I encountered mainly young rabid socialists whose "wisdom" came from newspapers and doctrine - mine came from experience, I was supposedly prejudiced - they were supposedly open minded. Their type are now the leaders in UK and Europe. They are in my opinion why the whole system is flushing itself down the toilet. "Check the tears in my eyes".
ReplyDeleteThank you for sharing that observation. It should resonate with many of us now as we, in the US, accelerate down that same road.
DeleteThanks for "almost" saying what really needs to be shouted while still "respecting" Dan's website, Sir.
DeleteI'd always thought that some debt was okay as long as you could leverage it to make more income. Mainly in business where I could invest in more machinery that brought costs down and increased production. But even them only if the loan money was a sure investment and could be paid off in short order.
ReplyDeleteBut I never thought about borrowing money just to say I had more?
It now seems that any chance of fixing this fiscal mess is now well and truely zilch! The more these companies re finance at lower and lower interest rates the harder it will be to repay when and if the rates start to go up.Looking at it from an Australian perspective your fiscal cliff is now about the size of 6 Grand Canyons.
ReplyDeleteThe effect of artificially low interest rates is like peeing yourself to warm your leg. It works OK for a moment but you quickly discover that you are worse off than before.
ReplyDelete