Here’s a candidate for the understatement of the year: The Federal Reserve is concerned that their free-wheeling, money-printing, dollar-destroying, quantitative-easing, zero-percent interest rate policy might be “fueling undue financial-market speculation.”
Do ya think?
The Fed is a serial bubble blower worse yet, they have refused to hold the most aggressive and damaging speculators accountable for their own losses. Instead, they have participated in a massive socialization of risk, where profits remain private but losses are the taxpayers’ burden.
Is this anyway to run a Central Bank? (and I am not calling for the Fed to be dismanttled or hobbled like others are).
There has been little or no clawback of the ill gotten gains from the people who caused the problem, but escaped with 100s of millions of dollars; there has been endless subsidies for the banks, but little hard-to-swallow medicine for the banking system.
My pet theory is that all of the anger about Health Care Reform is misdirected rage at the corrupt Bailouts. I don’t want to get too Continental on you, but the conversation in Europe I encountered repeatedly was the sheer perplexity at why people are protesting health care coverage for all. One fund manager said to me in Berlin, “You give trillions to rogue bankers, yet you have 40 million uninsured American. Why is that?”
My answer: I haven’t the foggiest idea why.
Meanwhile, the banks are (rationally) hording capital, thus they have not increased lending, all the while they garner huge state subsidized profits.
We have not yet sufficiently called out Hank Paulson for his role in this mess. Tim Geithner is starting to capture flack for his participation in the massive wealth transfer/taxpayer giveaway, but he was junior to what we now think of as the Hank & Ben show.
Let me be brutally frank: With George W. Bush AWOL during the crisis in 2008, it was Bernanke and Paulson who stepped into the void. But make no mistake about it — the chief architect of the massive bailouts was none other than former Goldman Sachs CEO and then Treasury Secretary Hank Paulson.
Perhaps when his book comes out, it will grant people another opportunity to look more closely at his role in the crisis. He didn’t create it, but he sure as Hell made things a whole lot worse.
Meanwhile, here’s Bloomberg:
“Federal Reserve policy makers said for the first time that their decision to cut interest rates to zero may be fueling undue financial-market speculation even as they called the dollar’s decline “orderly.”
The Federal Open Market Committee said its policy of keeping rates low might cause “excessive risk-taking” or an “unanchoring of inflation expectations,” according to minutes of its Nov. 3-4 meeting released yesterday. Central bankers also said further dollar depreciation that might “put significant upward pressure on inflation would bear close watching.”
The dollar weakened as investors wagered the central bank will tolerate further declines in a currency that has slid more than 6 percent against the yen in three months. Policy makers are wary of fueling a third asset-price bubble in about a decade as they hold the benchmark interest rate near a record low to revive growth, economists said.
“Financial markets have been doing much better than people might have expected,” said Marvin Goodfriend, a former policy adviser at the Richmond Fed who is now a professor at Carnegie Mellon University in Pittsburgh. “The Fed is saying to markets, ‘Don’t overdo it.’”
Thanks for nuttin, Danny . . .
Tactical Error: Health Care vs Finance Regulatory Reform (September 9th, 2009)
Fed Officials Watch Asset Prices for Signs of ‘Excessive Risk’
Bloomberg, Nov. 25 2009
Fed Cautious About Strength of Recovery (NYT)