A real economic enema.
Excerpts: Obama vs. the banks. From the Wall Street Journal
Wall Street fat cats are always a convenient political target, but bankers are responding to the incentives generated by the economic policies of the Treasury and the Federal Reserve. First and foremost is the Fed's policy of near-zero interest rates.
What this means is that banks can raise short-term money at very low interest rates and buy safe, 10-year Treasury bonds at around 3.5%. The Bernanke Fed has promised to maintain its policy for "an extended period." That translates into an extended opportunity for banks to engage in this interest-rate arbitrage.
Why would a banker take on traditional loans, which even in good times come with some risk of loss? In today's troubled times, only the best credits will be bankable. Meanwhile, financial institutions are happy to service their new, best customer: the U.S. Treasury. That play on the yield curve is open to banks of all sizes.
The Fed's policy makes sense if the goal is restoring bank profitability by generating cash flow. It is a terrible policy if the goal is fueling small business, the engine of economic growth and job creation. Large, nonfinancial corporations have access to banks. They can also tap the public credit markets and have access to internally generated funds. Not so for small business, which depends heavily on banks for credit...
This was one of the many reasons why I differ with you on the Fed. It is not a necessary evil as many claim, but the institution simply unnecessary. Central banks have too much to gain from inflating the monetary base. Political pressures aside, why trust the purchasing power of our currency to a single man, or even a board?
ReplyDeleteI use to be 50/50 on my views of the FED and its legitimacy. I agree with you more and more on this. I would say I am about 90% anti-FED at this point which was the theme of the post.
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