The Interest Rate Tailwind And The Stock Market: Buying Debt In The Equity Market [View article]
However, their actions caused a historic rise in commodities inflation right as the economy plummeted. The major people able to take advantage of it has been the banks while people and businesses suffered. Fed action has unintended consequences. Commodity inflation is certainly one of them.
The Interest Rate Tailwind And The Stock Market: Buying Debt In The Equity Market [View article]
Despite the Fed holding down Treasury rates and supporting Fannie and Freddie in buying up loans along with the Federal government at a discount and a loss, the simple fact is the default risk is the issue. Loans can not be made by anyone but the government at rates that are greater than the default amount and the government itself is dumb to do so as well.
No matter how you cut it, even though the Fed floors base interest rates the people borrowing can't get a break because default risk has risen not fallen. Worse yet banks are using business loans to pay off their bad debts making the cost of borrowing even that much higher. If the Federal Reserve and government want to help the economy they would be best to help lead low interest or discounted borrowing through small business loan agents at a discount or with some government risk guarantee to lower the cost of borrowing. This would be 100x more effectively than feeding TBTF banks with public money. At least this way the loans enter the economy and get to SMEs where real economic growth takes place and enters the monetary cycle rather than rotting as digital numbers on a bank reserve balance sheet.
The sad fact is that I suspect no one in government and the Federal Reserve wants an economic recovery. They merely want to engraciate their interest group and in so doing they keep inflation down because no one but their interest groups spend the newly minted money. Government loves making the rich and well connected rich richer at the cost of everyone else.
The Interest Rate Tailwind And The Stock Market: Buying Debt In The Equity Market [View article]
The Interest Rate Tailwind And The Stock Market: Buying Debt In The Equity Market [View article]
No matter how you cut it, even though the Fed floors base interest rates the people borrowing can't get a break because default risk has risen not fallen. Worse yet banks are using business loans to pay off their bad debts making the cost of borrowing even that much higher. If the Federal Reserve and government want to help the economy they would be best to help lead low interest or discounted borrowing through small business loan agents at a discount or with some government risk guarantee to lower the cost of borrowing. This would be 100x more effectively than feeding TBTF banks with public money. At least this way the loans enter the economy and get to SMEs where real economic growth takes place and enters the monetary cycle rather than rotting as digital numbers on a bank reserve balance sheet.
The sad fact is that I suspect no one in government and the Federal Reserve wants an economic recovery. They merely want to engraciate their interest group and in so doing they keep inflation down because no one but their interest groups spend the newly minted money. Government loves making the rich and well connected rich richer at the cost of everyone else.