on debt on books.. how is the 0% policy of FED helping small business and corproations. most people still pay 10% interest on loans so this 1% short term interest rate is useless in job creation if bond market isn't lending. the problem with equities is lack of good investments...only 1% of outstanding shares are available for sale in the open market. ie so many stocks have been bankrupt and loss 90% of ipo value the stock market is like putting good money into bad money.. the bond market is the only good safe place for capital..firms get money to expand and investors don't lose their investment. all the investors who bought msft or or any no growth no dividen stock is sitting on dead money...no capital appreciation. ie if GM or citigrou didnt' get short term lending from the gov't they be bankrupt and shut down th business and laid off workers and permanently closed the business. all this Qauntitiative Easing is doing is providing too much short term liqudity and causing rising prices in limited assets..there aren't that many qaulity stocks in the market index(float) the risk/reward is equities is reaching tipping point. as for real estate it's illiquid and unsuitable for short term investing. hence the chasing of dollars into any asset class. for short term high liquidity..investors are borrowing money at 1% to buy stocks and commodiites. this doesn't create any new jobs and actually increase cost for business and consumers...further slowing the economy in the short term
very good post But how is this going to resolve itself? Or not? Bernanke isn't going to change. He doesn't get it does he? He could print another gazillion dollars or even set rates at negative levels and Joe Public individual or small businessman would still be paying 10% for loans. Infact, if you create some proper inflation in the system (and at some point, you will if you create enough new money), banks may be less willing to lend to ordinary folk because when it comes back to the banks 5 years later it will be worth a lot less. I don't see any easy way out here. The policy makers probably do need to create a little inflation in wages to reduce the real value of debt, get some higher nominal tax revenues coming...but now I'm starting to sound like a unionist! Heaven forbid And the other thing which is puzzling is why US home prices are so bombed out and yet in China and other countries..even the UK...based on affordability measures such as income/price ratios, prices look way too high. Why are these differences not arbed out? So much for the global economy.. So from my side, the head scratching goes on...
it's misleading and borderline fraud to say interest rates is 1% when everybody is paying 7% on debt.. therefore 1% fed rates is useless in the real world in job creation. that is the only purpose to keep rates this low...not to support the profit margins of banks...you know why goldman sachs became a bank...they want access to FED overnight rates..... which is why traditional investment banks and brokers cannot compete with bank in this business. banks have unlimited buying power can can move financial markets. crash them or prop them. the FED is just puppet. FED instead of regulating the banking system is a servant dog. FED will do what wall street bankster tells the FED to do...sit doggy,,kneel doggy fetch doggy.and the FED sit ,kneel and fetch.. When volcker was FED in teh 80's wall street fear the FED... now wall street has picture of Greenspan and Bernanke in their office... Does Gates and Buffet have Obama picture in their office? people used to have Ronald Reagan's portrait in their office.