Banking analyst Meredith Whitney and Federal Reserve Bank of St. Louis President James Bullard discuss the costs of current Federal Reserve policy. Here is a direct link.
Bullard also explained why he’d like to see more economic data before deciding on “big action” at the next meeting of policy makers. Here is a direct link.
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Another bunch of idiots who think that a central bank (e.g. the FED, ECB, BoJ, BoC, BoE) determines interest rates. It’s all participants that determine the level of interest rates a.k.a. “Mr. Market”. One A. Gary Shilling accurately describes in his book “The Age of Deleveraging” why interest rates rise and fall. It’s simply a matter of “Supply & Demand”.
The notion that the FED controls interest rates is preposterous. Read A. Gary Shilling’s book “The Age of Deleveraging”. Throughout the book he explains why interest rates started to fall in 1981.
Look e.g. at the yield curve in the last three years. In spite of two operations Twist the yield curve continued to steepen.
It’s simply a matter of “Demand & Supply”. There’s proof that inflation does not push rates higher.
In the 1970s rates went up from 7% up to 15% in 1981 and oil went up from US$ 5 up to US$ 40, 45. An eightfold increase.
Now compare that with the 2000s. Oil went up from US$ 20 in 2001 to US$ 147 in 2008, a sevenfold increase. But yet, interest rates went down from about 6% to about 4% in 2008. So, interest rates don’t respond to inflation.
Investors flocking into high yielding bonds is the next accident waiting to happen.
She said the low rates are not helping 401ks and pensions. It hasn’t helped my 401K because I put everything in the fixed return fund in about 2008 when I started seeing the negative returns on my statements (negative returns have occurred most of the time since I started the 401K in 1997 so it’s been in fixed most of the time, sadly). HOWEVER, investors whose advisors recommended they buy stock funds starting in March 2009 have done well, so I blew it bigtime.
I am not sure anyone knows what to recommend. Meridith said a while back something like “hundreds of municipalities would go bankrupt”. A few have – that’s it. Is she still waiting? Must be frustrating to see your public predictions fail.
Many of my favorite internet advisors say a big decline with deflation is due in the next down-leg of the secular bear, and THEN we can start the next secular bull. I’m thinking it’s all a bunch of bull. I’m hoping they’re right and the cash I have will help me do OK after buying all those bargain assets at rock-bottom prices, but I’m beginning to doubt it. I really doubt it will happen if Oblabber wins in November – they will continue racking up debt in new QE schemes until the dollar loses reserve currency status, then it’ll be TILT – GAME OVER for the USA. On the other hand, if we have big tax cuts and defense spending increases under Romney/Ryan the deficits may explode, then we’re back to losing reserve currency status and it’s TILT – GAME OVER again.
Sad state of affairs any way you look at it.
The Fed has clearly been demonstrating on Friday that it will only come into play in a market decline, by repeatedly promising it will come to the rescue “if needed”, and taking no action. The important question is not whether there is a Bernanke Put, but what is its strike price?