Salient to Investors:
William D. Cohan writes:
Paul Krugman is wrong in denigrating David Stockman’s cogent argument that the Fed is fomenting economic trouble.
David Stockman is exactly right when he says the Fed has basically become a bubble machine, and almost all of the new money created, $1.7 trillion, is simply circulated through the banking system, through Wall Street, and back on the Fed’s balance sheet. Stockman says this allows people to speculate and hit home runs, does not help the Main Street economy, and crushes savers – if you saved your whole life and you have $100,000, you’re making $400 a year.
QE has been an unqualified boon to Wall Street, a gift to traders by the Fed’s promise to keep interest rates low for the foreseeable future, and a willing buyer in the Fed, at market prices, for squirrelly mortgage-backed and other complex debt securities. The Fed’s low short-term interest rate policy has allowed money-center banks with access to the Fed’s discount window to back up the truck and get as much short-term funding as they need at virtually no cost.
Stockman correctly says banks pay virtually nothing to depositors for the use of their money, which lend out at wide spreads. In 2012, despite losing $6.2 billion in the London Whale debacle, JPMorgan Chase still earned $21.3 billion in profits, its best year ever.
Stockman says Bernanke is the single most dangerous man ever to occupy high office in US history, and what the Fed is doing is terrible.
Paul Krugman wrote Stockman’s argument is cranky old man stuff, the kind of thing you get from people who read Investors Business Daily, listen to Rush Limbaugh, and maybe, if they’re unusually teched up, get investment advice from Zero Hedge.
The Fed’s low interest-rate, easy-money policies are literally creating the next financial bubble sooner than we care to admit – the very same thing happened just 8 years ago and led to the Great Recession of 2008.
Read the full article at http://www.bloomberg.com/news/2013-04-14/fed-is-the-villain-in-krugman-stockman-brawl.html
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