"Conventional
wisdom explains this disconnect—so many signs of growth, yet widespread fears
of stagnation and decline—by first pointing to the Fed. Zero interest rates
don't reflect a strong demand for safe assets, they are simply the by-product
of the Fed's massive money printing. Interest rates would be much higher, and
consistent with the evidence of continuing U.S. economic growth, if the Fed
weren't pegging them at zero via its Quantitative Easing efforts. Housing would
be collapsing if the Fed weren't propping it up via its purchases of MBS. And
what this means, as the theory goes, is that it will all end in tears. If the
Fed ever tries to raise rates, the economy will then surely crash, snuffed out
by tight money the same as has happened with every recession in modern times.
In the meantime, the Fed is seriously distorting the capital markets and
fostering malinvestments (aka "bubbles") that will inevitably lead to
a bust. The Fed's flood of excess money will eventually collapse the dollar,
followed by a hyperinflation that will inevitably lead to the destruction of
the world as we know it. In short, conventional wisdom holds that the Fed can't
do what it's doing without there being huge downside risk."
http://scottgrannis.blogspot.
http://scottgrannis.blogspot.
