Want to know why Bernanke won’t stop QE & ZIRP? Because they don’t work. From CNNMoney:
‘Don’t worry about rising rates, say legendary bond investors Jeffrey Gundlach and Dan Fuss…
‘Doubleline Capital’s Gundlach and Loomis Sayles’ Fuss say the recent rally in yields is unlikely to continue, thanks to the Fed.
‘Both say the Federal Reserve will make sure that any rise in rates will be slow and controlled. Gundlach and Fuss said that the consequences for global markets and the economy will be dire if the central bank fails.
‘"People have been saying that the Fed thinks the economy is self-sustaining, and that means lack of support for bonds," said Gundlach. "But the whole structure of the financial markets has been balanced on top of low interest rates."’
Yes, dear reader, a few years ago, it would have seemed absurd and/or criminal. Now it seems indispensable. The Federal Reserve keeps real interest rates in negative territory (below the level of consumer price inflation)…and supports the banks and speculators with an avalanche of cheap credit.
And now, the whole economy depends on it…
But ZIRP and QE are quack remedies. They’re like bloodletting…which makes the patient worse and prevents him from getting better. Since QE and ZIRP don’t work, the economy doesn’t recover…so it needs more "help" from the Fed. From Bloomberg:
‘Manufacturing in the US unexpectedly shrank in May at the fastest pace in four years, showing slowdowns in business and government spending are holding back the world’s largest economy.
‘The Institute for Supply Management’s factory index fell to 49, the lowest reading since June 2009, from the prior month’s 50.7, the Tempe, Arizona-based group’s report showed today. Fifty is the dividing line between growth and contraction. The median forecast of 81 economists surveyed by Bloomberg was 51…
‘"Manufacturing is really stymied by slow corporate spending and government spending cutbacks," said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, who was the only analyst in the Bloomberg survey to correctly project the drop in the index. "Manufacturing will grow at a modest pace this year" although it "is unlikely to accelerate in coming months," LeBas said. "This is part of the slower expansion we’ll have in the second quarter."’
As we keep saying, the Fed has not, is not and will not ever bring about a recovery. The recovery will happen on its own…when the economy is good and ready. And not a minute before.
All the Fed can do is retard the process of recovery…by depriving small and medium businesses of the real savings (credit) they need…by shifting resources from productive businesses to government and big zombie corporations…by making saving unattractive… by encouraging speculation, rather than genuine capital formation and long-term investment…and by increasing the total amount of debt in an already debt-drenched society.
None of this helps a recovery. In fact, it slows it down. It makes the economy weaker. Which is just great from the Federal Reserve’s perspective. If the economy did recover — even a little — inflation and interest rates would rise.
And then what? Then, as one central bank governor put it, the economy that went wild turkey would go cold turkey. It wouldn’t be very pleasant. The Federal Reserve couldn’t keep going with zero interest rates and bond buying — not with the CPI going up. It would have to cease and desist.
Mr. Bernanke & Co. would be stuck, trapped between the Scylla of a collapsing economy and the Charybdis of out-of-control inflation.
Their meddles would begin to look like big mistakes.
for Markets and Money
From the Archives…
Why You Should Keep Your Portfolio Grounded in Cash
31-05-13 – Vern Gowdie
China’s City in the Sky
30-05-13 – Dan Denning
House Prices First, Stocks Second.
29-05-13 – Dan Denning
Why Natural Gas Could be the Next Crucial Industry for Australia
28-05-13 – Dan Denning
The Japan’s Nikkei is Starting to Crack
27-05-13 – Dan Denning
As resources analyst Jason Stevenson explains in his free report, this could be your final shot to pick up cheap, quality mining stocks before the commodities comeback kicks into overdrive in the months ahead.
Download this free report right now and discover:
- Ground Zero for Mining Boom Part 2: This ‘wild card’ nation could spark the next iron ore boom as early as 2017. Government officials are signing deals to build 100 new mega cities over the next five years. Jason calls this nation the ‘new China’. And you’ll learn the stocks most likely to profit from it.
- Why the Aussie Resources Boom Will Last another 18 Years: If you think the days of striking it rich with Aussie resource stocks are gone…you’re dead wrong. Jason reveals why the new resources boom — set to kick off in 2016 — will last until 2033.
- The Top 10 Aussie Mining Stocks to Buy Now: These 10 quality Aussie miners are trading at fire-sales prices. This could be your last chance to buy them so cheap. Load up now and you could make a small fortune over the next two years…
To download your copy of The Top 10 Australian Mining Stocks for 2017, take out your free subscription to Markets & Money. Simply enter your email address in the box below and click ‘Send My Free Report’.
You can cancel your subscription at any time.