Wednesday, September 07, 2016

Central Banks Are Going To
Dig The Hole Of Failure Deeper
In his latest missive, John Hussman reminds readers of the cause of the financial crisis as a predictable response to Federal Reserve-induced yield seeking speculation, brought on by inappropriately low interest rates & enabled by banks & Wall Street financial institutions "who had an incentive to create more 'product,' regardless of credit quality, in order to satisfy the yield-seeking demand of speculators. Sound familiar? The Fed has done precisely the same thing in recent years, but writ much larger, to extend to all classes of assets." .. the crisis temporarily subsided due to the suspension by the Financial Accounting Standards Board (FASB) to remove the requirement for banks & other financial institutions to mark their assets to market value .. what is happening now: "Think carefully about what the economists at Jackson Hole were really saying: 'If you’ve worked hard, and saved, and want to provide for your future without joining in on the late-stage of a speculative bubble, then our job is to figure out how to punish you into abandoning those plans and consuming or speculating now. We’re really smart and well-intentioned people, and can’t imagine that repeated episodes of yield-seeking speculation and collapse could possibly be our doing, so the only solutions to be found must be those that expand the size, scope, and aggressiveness of our interventions. If zero interest rates aren’t enough, perhaps we can eliminate the lower bound entirely. If negative interest rates aren’t enough, then we need to wipe out your purchasing power by raising the inflation targets we already can’t hit. Sorry, it’s a trade-off. We can’t prove the benefits of that trade-off in actual data unless we’re super-careless about what we call evidence and only take credit for improvements, but let’s assume a tradeoff. QED.'"
LINK HERE to the essay

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