Hussman does a great job pointing out the fraud perpetrated by Congress & the Fed and carried out by FASB. If banks were held to mark-to-market standards like every other GAAP-reporting company, many (if not most) would be insolvent today (let alone two years ago). At some point, this lax accounting policy will be allowed to expire -- expect banks to dump assets, be forced to raise capital at a discount, and suspend making new loans. They know this day of reckoning is coming, which is why they held on to TARP funds instead of lending them as Congress intended, and then invested the funds in the market in order to make record profits in the last four quarters.
Key Paragraph: "In short, further attempts at QE are likely to have little effect in provoking increased economic activity or employment. This is not because QE would fail to affect interest rates and reserves. Rather, this policy will be ineffective because it will relax constraints that are not binding in the first place."
Unanticipated Consequences:
- Ignorance: The Fed is acting without gathering all the facts; essentially ignoring history and unlearning lessons.
- Error: The Fed has incorrectly assessed what the barrier is that is preventing the economy from moving forward -- it is not liquidity, it is loss of trust (which no amount of QE will fix - only time can repair it).
- Immediate Interests: It is beyond me why the Fed of the last 15 years continuously insists on manipulating the stock market in the short term. Whether it is QE or interest rate moves, it more often than not has appeared that the purpose of such policies has been to prop up the stock market in the short term, often at the expense of the economy in the long-term. The Fed's stated purpose is "to provide a safer, more flexible banking and monetary system." Politics and the stock market should have no bearing, yet both seem to creep in and take hold of most decisions -- just one reason why the system is in need of an overhaul.
No comments:
Post a Comment