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Posted 25 July 2012 - 09:17 AM
“The Fed is running out of balance sheet,” – St. Louis Fed President BullardThe expectations are high that the Fed delivers more mucky muck and QE. I have serious doubts about this, as creditworthy borrowers can already borrow at almost nothing, and dropping short rates to zero would bankrupt the entire money market world, screw up the insurance and pension industries beyond repair. The cost of money has long since passed the point where it is a constraint on otherwise sensible economic behavior in the real economy. Even the manipulated US Treasury break-even rates the Fed uses doesn’t call for it. I doubt if it even has value to the Fed’s cronies in scalping more basis points flipping bonds. Taking the reserve rate to zero, may in my view literally drive money out of banks, and money markets and into vaults and mattresses.If QE comes I think it will drive food and energy commodities even higher, which would be disastrous. Even the USDA is calling for 3-4% food inflation from this drought. Oil is coming up on a strong seasonal pattern anyway, and geopolitical are extra high. It would suicidal to throw more gasoline on the fire.
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