The US Fed has aided and abetted today’s ongoing financial crisis through years of relentless intervention under Greenspan and then Bernanke to continually stimulate excessive consumer credit, support asset bubbles and reward reckless bankers with still more cheap credit. Worse, the Fed did not see any of the problems coming, even into the housing peak in 2006 as they insisted that asset bubbles were impossible to predict and that housing bubbles simply couldn’t happen.
That dismal record aside, many today continue to peg their hopes on an omnipotent, all-powerful-Fed that will never let market prices down. Never mind that we have now been through more than 12 years of extreme volatility with two 50% drops and several other 10 to 25% drops in stock and commodity markets. Never mind that most pensions and savers are now financially emaciated. Blind belief in the Fed remains desperately high for many.
Today stimulus junkies were encouraged by dovish comments made by Fed Vice Chair Janet Yellen in a speech last night at a dinner meeting in New York. Through the pleasantries of careful, intellectual speak, Yellen explained that she is worried that the economy is not recovering well, and that it may not do so for a few more years.
I thought some of you may like to hear her speech yourselves. As we listen, we should remember that after several years of extraordinary Fed intervention, interest rates are already about zero and the Fed has already tripled its balance sheet, levering itself now 50 to 1 to backstop bad debts in the banking sector. Not surprising then perhaps, that so many are left banking on just a hope and a prayer for more Fed “magic”. The question period afterwards is also pretty interesting.Here is the direct link.