Fed creates an economic illusion: Opposing view - futures io
futures io futures trading

Fed creates an economic illusion: Opposing view

Discussion in Traders Hideout

    1. trending_up 314 views
    2. thumb_up 0 thanks given
    3. group 0 followers
    1. forum 0 posts
    2. attach_file 0 attachments

Welcome to futures io: the largest futures trading community on the planet, with well over 125,000 members
  • Genuine reviews from real traders, not fake reviews from stealth vendors
  • Quality education from leading professional traders
  • We are a friendly, helpful, and positive community
  • We do not tolerate rude behavior, trolling, or vendors advertising in posts
  • We are here to help, just let us know what you need
You'll need to register in order to view the content of the threads and start contributing to our community.  It's free and simple.

-- Big Mike, Site Administrator

(If you already have an account, login at the top of the page)

Search this Thread

Fed creates an economic illusion: Opposing view

(login for full post details)
  #1 (permalink)
Aurora, Il USA
Experience: Advanced
Platform: TradeStation
Trading: futures
kbit's Avatar
Posts: 5,902 since Nov 2010
Thanks: 3,294 given, 3,357 received

What a waste of a crash.

After enduring all that pain from the financial crisis and the Great Recession, five years from its depths we have little to show for it. It's true that certain asset prices have surged, but a chart of the S&P 500 looks disturbingly similar to the timing of the Fed's various rounds of "quantitative easing," suggesting an artificial bubble built on printing money. Have we learned nothing?

OUR VIEW: Lessons from 5-year bull market

Before the fall of 2008, Ben Bernanke misdiagnosed the coming financial storm. His medicine was just as bad. Thanks to his playing Dr. Frankenstein, pumping life into failing banks that should have been allowed to die, we have created an economic illusion.

Interest rates are signals that provide important information to everyone in the economy. The Fed's artificially low interest rates induce investors to chase yield in risky projects that they normally would shun. Here's the paradox: Artificially low rates actually discourage patient investment, and create yield-crazed zombies that are only interested in what they can devour now.

A lack of capital expenditure growth shows the Fed's folly. Although corporations are sitting on record cash levels, their net debt levels are back to their 2008 highs. This debt has not been spent on organic growth, but rather on stock buybacks and dividends.

It's true that had the Fed not intervened, the crash of 2008 would have been even more painful and the recession more prolonged. But the bottom would have been a real foundation, solid as bedrock, from which meaningful, sustainable growth could occur.

In short, we would have a natural, well-orchestrated dance of great patience, from which the economy would progress. Even more important, we would be on solid footing now, instead of teetering atop a bubble of inflated assets.

Instead of toasting the success of the Fed, we would be better off recognizing the disconnect between reality and illusion. The illusion will shatter when the monster returns to its home, and asset markets return to reality. If we want a repeat performance of the last boom-and-bust cycle, current Fed policy is just the thing.

Fed creates an economic illusion: Opposing view

Started this thread Reply With Quote

futures io Trading Community Traders Hideout > Fed creates an economic illusion: Opposing view

Last Updated on March 10, 2014

Upcoming Webinars and Events

NinjaTrader Indicator Challenge!


Battlestations! Show us your trading desk - $1,500 in prizes!


Importance of Finding Your Own Way w/Adam Grimes

Elite only

Journal Challenge w/Jigsaw


Copyright © 2021 by futures io, s.a., Av Ricardo J. Alfaro, Century Tower, Panama, +507 833-9432, info@futures.io
All information is for educational use only and is not investment advice.
There is a substantial risk of loss in trading commodity futures, stocks, options and foreign exchange products. Past performance is not indicative of future results.
no new posts