The Smoke of ZIRP and the Mirrors of QE

The front pages of yesterday’s newspapers were full of good news. A strong rebound in real estate prices, they said, meant a full recovery was in the bag. From Reuters:

‘Home prices accelerated by the most in nearly seven years in March as the spring buying season gave the sector traction, while surging consumer confidence pointed to some resilience for the economic recovery.

‘The data on Tuesday also suggested the two segments could act as buffers as the broader economy faces the pinch of belt-tightening in Washington.

‘The S&P/Case Shiller composite index of 20 metropolitan areas climbed 10.9% year over year, beating expectations for 10.2%. This was the biggest increase since April 2006, just before prices peaked in the summer of that year.’

This, along with a record stock market, was spreading cheer from coast to coast. Again, from Reuters:

‘Consumer confidence strengthened in May to the highest level in more than five years, suggesting Americans’ attitudes were resilient in the face of belt-tightening in Washington, a private sector report showed on Tuesday.

‘The Conference Board, an industry group, said its index of consumer attitudes jumped to 76.2 from an upwardly revised 69 in April, topping economists’ expectations for 71. It was the best level since February 2008.’

So you see, dear reader, everything is hunky-dory, copacetic and cool.

But wait! What’s this? In the face of all this good news, the US stock market fell and
‘disaster insurance’ gold rose.

Why? Because good news is bad news. Bad news is good news. Up is down and backward is forward . Nothing is what it seems…or what it ought to be.

If the economy were really doing better, the Federal Reserve would have to follow through on its promise to ‘normalise’ monetary policy. That is, it would stop lending at zero interest rates and stop its $85 billion-per-month quantitative easing program.

But our hunch is that those hocus-pocus programs — not a genuine recovery — are what keep stock prices going up. Take them away and you also take away the boom in stocks…and real estate too. (Housing prices now depend on the lowest mortgage rates in 50 years.)

What this means is that there is no genuine recovery. It’s all the smoke of ZIRP and the mirrors of QE. When the magic show ends…so does the illusion of recovery.


Bill Bonner
for Markets and Money


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Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America’s most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind Markets and Money.

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