There is a chill moving through markets right now. The great central bank experiment of the last 5 years (the acute version) is misfiring again. As they say – you can’t get something for nothing, and the experiment which has failed the lower and middle classes of the Western world is now failing the monied classes. At least at this moment and in Japan. The markets which were feeling pretty good about themselves (for the most part, though Japan has had significant volatility recently) aren’t feeling so good.
The world is coming to terms with the possible end of QE, and like a heroin addict who’s methadone prescription may soon run out, markets are getting very nervous.
I know this comes as a newsflash to most of our readers, but pouring at least $85 billion/month (probably a good deal more) into the economy isn’t a smart thing to do. Bill Gross, manager of more bonds than probably any other private individual in the world believes Bernanke’s grand experiment is holding back “recovery.”
And right now we have a very complicated situation, with some parts of the economy rapidly becoming overheated, while others languish. None of it however constitutes “recovery.”
So the Fed is going to “taper” away the quantitative easing, the printing of money, in which it is currently engaged. Bernanke (or Larry Summers—shudder) will one day allow interest rates to rise back to normal levels. Don’t worry, the economy will emerge from this radical economic experiment and all will be well. You’ll see. Ben promises.
Since the dollar continues to be the world reserve currency, and since the mega banks float like clouds over the entire planet paying little attention to borders, we shouldn’t be surprised. But that the Fed has essentially given away $1 trillion to non-American banks is pretty amazing . (Not that American banks are any better than the foreign ones of course.)
Wall Street firms have swept in buying up foreclosed homes all over the country with the idea of becoming “super landlords.” If a firm can buy up a a hundred rental units at a reasonable amount with virtually free money (which is likely to remain free for a good while) and then turn around and rent the units to the people who have been foreclosed on, then hey, why not?
This is yet another example of how all the Fed’s printing is benefiting the firms which originally were saved by TARP even though they should have died.