Tuesday, September 18, 2012

''Be Very, Very Scared''

'Lost: One plot...went missing on the afternoon of 13th September 2012 in Marriner Eccles Building, Washington D.C. Please contact Ben Bernanke if found.'

That's right, dear reader, Ben Bernanke has officially lost the plot. In a desperate attempt to boost employment in the US (or so he says), the Fed chief announced he will buy USD$40 billion in mortgage backed securities every month until the situation improves.

In that case he'll be buying for a long time. USD$40 billion in monthly asset purchases is not that much. We know that sounds like an insane statement but in this already hugely inflated monetary world, it's not. When Bernanke fired his first shot of QE in 2009, the monthly rate of Treasury purchases was US$75 billion. This is a diminishing amount of QE.

QE1 and 2 didn't improve the employment situation, and neither will this upcoming monetary injection. Such actions profoundly distort the functioning of a market-based economy. At times like this it is important to remember just why the US (and global) economy is in such a mess...it's because central banks held the rate of interest well below the market rate for a prolonged period of time. Read More