"I will first note that the Greenspan Federal Reserve was caught completely off-guard by the market excesses that their policies had nurtured back during the (then) aggressive 1992/93 reflation period. It's worth noting that the hedge fund community has expanded about 20-fold since, to a record $2.1 TN. Global derivatives markets have mushroomed to hundreds of Trillions. Importantly, derivatives markets as well as the global “leveraged speculating community” have continued to grow post-2008 crisis – only further bolstered by aggressive policy regimes."
In a NORMAL crisis, or Recession, there is usually a slowing demand for credit, and a retrenching by Consumers, after the period of slowing demand, the Consumer will have reset themselves, sentiment will improve and the economy heals and grows again, this will be a sustainable recovery.
Instead, what we have now is an Historically LOW recovery in Consumer sentiment, remember the Consumer is 70% of the US economy. In fact in the latest poll sentiment fell the most in the last 9 months, considering at same time STOCKS were near their highs is disconcerting.
The FED was not watching the excessive speculation in the late 90'S? The PENNY STOCK FEVER would rival any TULIP MANIA of the past 100 years. High tech stocks soared almost every day with DOT COMS springing up on the HOUR and had no trouble getting funding, went public , then shortly went bust, but not before we saw MANIC behavior and WILD SPECULATION.
Since it was more an inventory, and tech related specific mania....stock mania, the REAL economy would have recovered. NOT GOOD ENOUGH for the FED, they had to MEDDLE again, but who remembers they were the BOZO'S ON THE BUS, asleep at the wheel while all the wild speculation was at play, visible in PLAIN SIGHT for anyone to see. But they didn't see? SURE , they saw, but maybe purposely did nothing. WAS this an experiment for Greenspan the financial monarch to prove he could cure a BURST BUBBLE?
Here comes his successor, Ben Bernanke, as we live and breathe GREENSPAN CLONE ON STEROIDS!
"How do you deal with a burst bubble? INDUCE ANOTHER ONE, but the next one proved to be even more unwieldy and harder to manage and again, the FED induced REAL ESTATE speculative BUBBLE, MANIA went unchecked by anyone? Including those in charge whose mandate is SOUND MONEY POLICIES and FULL EMPLOYMENT?
Now we have the BANKS and many FINANCIAL institutions involved in the mess....so what do we do? CREATE $16 Trillion out of thin air and bail then all out, HELICOPTER BEN.
Now he has his European DOUBLE?
0% FED FUNDS for almost 4 years, yet we suffer from PLUS 8% unemployment, that tells me the policies are ineffective in fixing the real economy. But this has fostered ANOTHER, perhaps even more dangerous BUBBLE to cover the previous one (see how this works)....
A GOV'T DEBT BUBBLE.....and an asset bubble AGAIN. AND if the FED is backstopping everything then isn't this setting up a worldwide MISPRICING OF RISK ASSETS????
You have a FED and world CB'S showing all their cards on the table, "WE GOT YOUR BACK" keep doing what you are doing. Meaning, we have PUT on the market, it can't fall because we would just print more money...and cover it all up.
BUT, the lack of ANY YIELD IS causing many to do just about anything to find yield. Even John Mauldin has just issued his new newsletter called "Yield Shark", to help subscribers find yield in an environment where it is harder and harder to find ANYTHING SAFE!~
IS FORCING almost all of the investors to ONE SIDE OF THE BOAT a good idea? ALL BUBBLES eventually burst.
AS Consumers have cut back on spending Governments have tried to STEP IN and replace them, making it an even more unbalanced economy. Gov't spending VS BUSINESS OR CONSUMER spending tends to be a LOT less efficient. It is speculated that it takes $800,000 per person for the Gov't to create a single job. (that figure comes from the govt's own figures)
Now there is mounting pressure to curb gov't spending, as we run $TRILLION plus deficits, and an audit the FED bill passed.
Wall Street reveres the FED, what if the FED Loses credibility? What appears stable is not, in round #3 of BUBBLE BLOWING the FED has outdone itself, for every action there is an equal but opposite reaction.......I DON'T like the sound of that.