So here’s a question on this first trading day of the new decade: Has the smart money learned from its mistakes and gotten any smarter? Not so you’d notice. The Associated Press reports that some analysts believe new bubbles already are forming. As the Federal Reserve keeps the borrowing costs low — in hopes of reviving investment in job-producing businesses — traders are using the easy credit to bid up prices on stocks, both here and abroad, and on gold.
“They’ve put out the biggest punch bowl in U.S. history and people are guzzling from it,” Haag Sherman, chief investment officer at Salient Partners in Houston, told AP.
The Editors blame "wizards of Wall Street" ... again.
I've left the following rebuttal comments:
So the government’s own Federal Reserve Board is again flooding the economy with fiat money and forcing interest rates down to well below market levels “in hopes of reviving investment in job-producing businesses”. And then we’re supposed to be appalled that the fast-money crowd crawls out of the woodwork to guzzle at the punch bowl. The “smart money” is placed at a competitive disadvantage in the face of the massive paper profits, as sound judgement is eroded and undermined by the perverse Fed-induced market incentives.
Money, especially paper money, is not wealth nor is it the source of wealth creation. The individual human mind is. Productive people must be free to think and act upon their own judgement, to take the risks and its consequences, and reap the rewards of success. That is how a growing economy is established. A sound currency and monetary policy is a requirement of a strong and robust economy. So are economic freedom and free markets. Today we are moving away from both. The Fed can “push on a string” from here to eternity with its inflationary policies, but if actual people of ability and ambition won’t step up and produce actual goods and services, we’re going nowhere.
What we are witnessing today is the inverse of the successful 1980s Reagan policies of “tight money” (i.e., a relatively competently run Fed) coupled with reduced government economic interference. Reaganomics was a far, far cry from laissez-faire capitalism, but the mild regulatory restraint, the sharp income tax rate reductions, and the return of a reasonably sound currency were enough to unleash productive individuals to pursue profit, resulting in tremendous real wealth creation and “investment in job-producing businesses”. The result was a simultaneous downtrend in inflation, interest rates, and unemployment amidst a generation-long economic boom.
Today we have dollar destruction coupled with the Obama Administration’s war on economic success, brought about via a massive expansion of the regulatory state, huge impending tax hikes, demonizing of wide swaths of American industry, the virulent new anti-trust activism, etc. Productiveness is hampered and speculation is encouraged. What result would one logically expect? A bubble economy and falling living standards.
As to the “wizards of Wall Street” building bubbles on top of bubbles, it was the explicit policy of the federal government to expand homeownership at any price that caused the housing boom and bust. The quick-buck “wizards” were simply tagging along for the “easy credit” profits.
The Editors are right to sound the warning bell. We’re heading for an economic calamity that will make the housing meltdown look like a warm-up. Yet, in classic style, the Editors fail to draw the obvious conclusion. Instead, they invert cause and effect, blaming the effect while giving the cause a virtual pass because after all, the Fed is guided by “hopes” – which apparently excuses anything.
The long-term solution is to move in the opposite direction toward free markets, capitalism, individual rights, and limited government. The best place to start is to phase out and abolish the Fed. We’ve had enough of its catastrophic failures.
The Star-Ledger laments the bubble economy, but refuses to see the culprit.
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