QE Sedative

Ben Bernanke, the Fed chairman who didn't see the housing crisis, debt crisis, and ensuing crash coming, supposedly will end his tenure at the Federal Reserve. I guess he wants to get out before the really hard work commences of trying to unwind everything the Fed has done the last 4+ years--it's not going to be pretty, and history tells us it always ends badly. In the meantime, the Fed keeps pouring more sedatives (QE) into the sick patient--

RealClearMarkets - QE: A Sedative That Robs The Economy of Vitality: " . . . In the end, no matter how you want to analogize or frame this process, central banks cannot under any circumstances create value. Federal Express, another news item this week, is grounding planes and reducing capacity because businesses in Asia are shipping less and businesses in the United States are using "lower margin" services (ie, cutting shipping costs). Is perpetual QE a realistic answer to these concerns? QE is the monetary equivalent of the economic adjustments taking place in PIIGS nations. It is a gutting and hollowing of the productive sectors in the name of finance, robbing vitality from the real economy. Nations are left impoverished where it is applied, but nobody cares while it happens because it feels so very pleasant and sedate. For its part, FedEx is doing exactly what Chairman Bernanke wants to see. The company is seeing a reduction in earnings growth, reducing headcount, cutting capital expenditures, but, in a manner consistent with the asset price focus, massively increasing its stock repurchase plans. Less capital, more money. Whether you want to classify them as illusionists, anesthesiologists or just plain dope dealers, central banks have no answers, only the ability to coax your fears to sleep, hidden beyond the cloudy dreams of seemingly perpetual bull markets. . . " (read more at link above)

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The Fed has created a new bubble

Don't look now, but the Federal Reserve is giving us another bubble--

Mish's Global Economic Trend Analysis: Inflation Targeting Revisited; Three Major Fed-Sponsored Bubbles; Who Benefits From Inflation?: "At some point however, asset bubbles do form and that's where big problems start. The Fed has sponsored three major bubbles in recent history. . . .
2000 DotCom Bubble
2005 Housing and Credit Bubble
2012 Stock Market Bubble
In the wake of the dot-com bust, the Fed (via loose monetary policy) sponsored a housing and credit bubble that caused the global financial crisis. The Fed did not see the housing bubble partially because prices are not in the CPI, but primarily because Bernanke and Greenspan have the common sense of a rock. . . . Income Skew - I explained why the rich get richer and the poor get poorer in Top 1% Received 121% of Income Gains During the Recovery, Bottom 99% Lose .4%; How, Why, Solutions
In response to that article a Reader Asked Me to Prove "Inflation Benefits the Wealthy" (At the Expense of Everyone Else) . . . ."
Read more at http://globaleconomicanalysis.blogspot.com/2013/03/inflation-targeting-revisited-three.html#5Fhx9Lz9jMh0oGFR.99 "

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Don't Trust Those "In Charge"

If you read nothing else this week, read the article from Forbes excerpted below. I remember being told  in Miami in late 2004, by a PR guy who did work for real estate developers, that a huge "real estate bubble" was developing that would burst and cause "a lot of banks to fail." He expected it to happen in 2005--a little early--but he was proven right. On the other hand, those "in charge" never saw it coming.

Don't Trust The Wise Men Of Finance - Forbes: " . . . Fed Chairman Ben Bernanke told a George Washington University class last week ( I saw it on C-Span) that the 2008 financial crisis took place because “nobody was looking at the whole system.” Almost simultaneously former Treasury Secretary Robert Rubin was telling another GWU group, televised on C-Span, that “no one saw the Long Tail coming,” meaning that no Wall Street leader, no economist, no legislative committee, no regulator, could predict the perfect storm of all investment assets collapsing at the same time. I beg to differ. Here, from a piece I wrote on June 18, 2007 — more than a year before the Lehman Brothers bankruptcy, I was talking to a whole mess of well-connected people about what danger we might be in. . . . "

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Ben Bernanke's Darkest Fears (funny video)

 Ben Bernanke's Darkest Fears (video)

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