bank rates

The Fed Is Pumping Up Another Bubble

There’s a growing concern that the Federal Reserve’s fiscal policy is creating a bubble in the stock market.

Well, duh.

After the Dow flirted with 11,000 all week, it’s increasingly clear that stock prices simply can’t be justified by the lackluster recovery or the potential for future corporate earnings.

But with the Fed driving interest rates to record lows, where are investors supposed to put their money?

Stocks? Absolutely.

Commodities, too. A rush of money into future contracts has definitely played a role in the recent run-up of oil and gas prices.

“When you penalize folks for being in cash you force them into risk-seeking behaviors,” Dean Curnutt, the president of Macro Risk Advisors, recently told “Our concern is that a substantial portion of this (stock market) rally is a function is of the incredibly stimulative policy from the Fed.”

No one wants the Federal Reserve to stomp on the recovery by allowing interest rates to return to market levels overnight.

But isn’t there a smart strategy that gradually moderates the extreme intervention that’s punished savers for more than a year and is now distorting other markets?

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Comments (1)
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One Existing Comment
  1. Investor 54 said:
    on April 15th at 02:22 pm

    Ben (the banker) Bernanke’s strategy for keeping the Fed fund interest rate at 0% continues to benefit Wall Street at the expense of Main Street.

    I’m an unemployed victim of this recession finding it harder and harder to live on fixed income; namely bonds and bank deposits. Bernanke’s “no inflation” justification for maintaining the 0% interest rates is bologna. Flash …my cost of living has increased due to higher property taxes , utilities, insurance, fuel, food, etc!

    The whole idea behind giving banks (tax payer) cheap money was that the banks would lend it to consumers and businesses to foster the US economic recovery and ease unemployment. THAT HAS NOT HAPPENED! Since the start of the crisis, bank lending has fallen off a cliff and consumer mortgage, loan and credit card interest rates as well as home foreclosures have sky rocketed. Instead, with a 0% interest rate, the banks are turning a profit by simply parking money in Treasuries without making any of the effort, or taking any of the risk, involved in making loans. Put another way, banks can borrow from the government at artificially cheap rates and then lend the money back to the Federal government at higher rates, pocketing the difference.

    Banks are also taking this free money and flowing it into financial assets (stocks, bonds, commodities etc.) as well as their own bank balance sheets with no accountability to the Fed. These unchecked, self-servicing practices aid the investment banks, institutional investors and Wall Street … NOT the real economy.

    When he had a chance to prove he was a real change-agent, President Obama made the biggest domestic policy blunder in history by reappointing Bernanke. He’s a Greenspan clone, a Reaganomics ideologue and a Trojan Horse protecting Wall Street with trillions in cheap money loans, guarantees and toxic asset takeovers, all hidden from taxpayers. Ben Bernanke’s cheap money policies are allowing Wall Street Banks to take more risks thus accelerating the next bubble.

    If Bernanke raised the Fed Funds rate thus making banks pay more for their borrowing, it would certainly help negate their greedy, self serving strategies and force them to seek better returns by making loans to consumers and businesses as well as encourage depositors with better interest rates. Wake up Congress!

    No one in government cares about the victims of this recession who are out of work with the mandate to live on fixed income. With the Fed providing banks with virtually all of the free money they could possibly want, they don’t need depositors and continue slashing interest rates on all types of savings to record low after record low.