“his ultra-easy policies risk creating a new round of asset bubbles”
Paging Capt. Obvious
However I found this piece from IBD to be sane and informative. Enjoy guys!
Tell you what I’ll do. I’ll send 10 truckloads of caulk to the Fed so they can start inflating bubbles in their assets that have something more than air that could escape when the caulk runs out.
Will that work?
If you happen to believe in a Christian God, you probably should not overlook the enormity of the hubris committed by the Federal Reserve and the Treasury Department as they style themselves after the Creature. The new money is not printed, but spoken into existence in exactly the same manner as God created the heavens and the earth in Genesis.
However, unlike God’s creation it has no substance at any time. In spite of that people do exchange items of real value such as labor, cars, and food for words spoken over a phone by a twenty something Fed bond trader. This person calls a company such as Goldman Sachs that has an inventory of securities purchased from the Treasury Department, and pays let’s say $1 billion for ten year notes. Until the trader speaks “$1billion”, the money to pay for the notes does not exist.
One analogy to explain the looming inflation might be to consider a flood control dam. The water that builds up behind it during the winter and spring could be considered QE1, QE2, QE3, etc. The face of the dam would be the current moribund economic activity causing a very low velocity of money as indicated by such questions as “Why do I want to borrow if no one wants to buy? or “Why do I want to buy when I don’t have a job?” Now stagflation happens when the reservoir gets so full with QE’s that some water just has to go over the top, even though economic activity remains anemic.
But when economic activity picks up unexpectedly, and the velocity of money multiplies the QE’s shatter the face of the dam. Now just as a wall of water scours out the stream bed and washes all before it, inflation rages through the economy and destroys people’s financial asset values.
The thing that changes here is the velocity of money with increased economic activity. Typical of all central bankers, Bernanke believes his macro-economic models provide the necessary information for precisely timed money supply adjustments allowing him to identify and react to this increase in velocity. He would sell bonds and reduce the money supply with a precision that prevents inflation from taking hold or a recession from occurring. He would proceed in such a manner as to concurrently allay any fears of a Congress and an Administration in an election year. This result has probably not been achieved since the seven years of plenty and famine in Egypt when Joseph obeyed the word of God from his dreams.
Now all this seems fairly insane, until you realize that every member of the G-20 behaves in much the same way. Since all currencies have about the same connection to reality, finding one or several of sufficient magnitude to replace the dollar as a worldwide medium of exchange or store of value becomes perplexing. An individual country might think they have a solution, but they know they must also survive during the resulting chaos as all countries seek similar solutions. I imagine something like the final scene in “The Good The Bad and the Ugly”. The members of the G-20 are standing in a circle with open graves behind them. They are all contemplating how they are going to successfully outdraw the other nineteen members.
The Good The Bad and the Ugly: http://www.youtube.com/watch?v=sXldafIl5DQ