Tuesday, August 02, 2016

Central Banks' Promotion Of Yield-Seeking
Speculation Will Lead To Destruction
"The true wealth of any nation is embodied in its accumulated stock of productive capital, infrastructure, unused resources, and knowledge. The use of this productive capital to generate 'value-added' - goods and services that have a greater value than the inputs used to produce them - is how new income, productive capital, and wealth emerge. The Federal Reserve’s deranged and wholly experimental attempt to create illusory paper 'wealth' through speculative overvaluation is no substitute for thoughtful and historically-informed economic policy. Holding interest rates down too low, for too long, is exactly how Fed-induced yield-seeking speculation created a bubble in mortgage debt and housing, and triggered the deepest financial collapse since the Great Depression. Now that the Fed has repeated this error, it has painted itself into a corner where even a timid quarter-point interest rate hike is the subject of quivering indecision. Unfortunately, having pushed the system to a speculative extreme, a collapse is baked in the cake .. The insistence of central banks on promoting yield-seeking speculation, a game that always ends in destruction, reminds me of the 1983 Cold War movie War Games where a teenage Matthew Broderick hacks into a Defense Department computer called WOPR, and launches a 'global thermonuclear war' simulation that’s mistaken for the real thing. How much yield-seeking speculation do central banks have to provoke, and how much do future economic prospects have to be injured, before they stumble onto the same conclusion as WOPR: 'A strange game. The only winning move is not to play.'"
- John Hussman
LINK HERE to the essay

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