Ruinous Symbiosis Between Congress And The Fed

Testosterone Pit ^ | Nov. 2, 2011 | Wolf Richter

[Carismar]

The members of the congressional panel on deficit reduction are struggling to come up with something that will—I mean, let's be realistic—get them reelected and fill their campaign funds. Even if they come up with a plan that will reduce the gargantuan budget deficits a bit, Congress won't follow through. Reason: it doesn't have to, thanks to the symbiotic relationship between Congress and the Fed.

-------

The Fed has a solid record: treasury yields are below the rate of inflation all the way up the yield curve, and so are yields for many municipal bonds, corporate bonds, all money market funds, savings accounts, and CDs. To get a positive real yield, one has to venture into junk with scary probabilities of default. Financial repression of this kind has a devastating impact not only on savers, but also on pension funds, Social Security, insurance companies, etc. And worse: inflation has outrun wage growth for twelve years. Both factors have impoverished the middle class by sapping its purchasing power. That's not the way to rejuvenate the real economy.

-------

To pacify Congress, the Fed issues assurances that it will continue to force down interest rates and print money to enable the Treasury to fund the deficits that Congress produces. Bernanke's talk today included a whole slew of such assurances. As long as this symbiotic relationship continues, Congress won't bring the budget deficits in line; it doesn't have to because the Fed shields congressional decisions from the brutal but healthy discipline of the markets.

[sauropod]

read

[guitarplayer1953]

Like someone said if we do not tie their hands and lock the money up they will continue to steal and spend beyond our means.