Salient to Investors:

David Stockman said:

  • The Fed has flooded equity markets with cash while weakening the Main Street economy and the phony money has created an unsustainable bubble economy that will begin to falter within a few years. When it bursts, there will be no 2008-style bailouts and America will begin an era of zero-sum austerity and virulent political conflict. When the Fed even hints at shrinking its balance sheet, it will elicit a tidal wave of sell orders in the bond market.
  • Supply-side economics’ benefits only trickle down to the non-wealthy and that the Reagan tax plan was always a Trojan horse for the primary goal of bringing down the top income-tax rate to 50 percent from 70 percent.
  • FDR weakened the gold standard in 1933 and Nixon removed the convertibility of dollars to gold.

David Blanchflower  at Dartmouth College said Bernanke saved the world, while stocks have erased all their losses entirely due to QE.

Jared Bernstein at the Center on Budget and Policy Priorities said the market certainly does not show that the sky is falling, and recent gains in the stock market are due to very high corporate profits and very low interest rates.

John Taylor at Stanford says Stockman’s argument does not account for great improvements in the policies and performance in the last three decades of US economic history, though the Fed’s record balance sheet is a big overhang that needs to be corrected because it creates risks that outweigh the benefits.

Alice Rivlin at Brookings disagrees that we have made all these mistakes since 1933 and that nothing good has happened in the past 80 years, and is impressed with the resilience of the economy and sees good prospects for growth.

Mark Thoma at University of Oregon says the markets are not anticipating turbulence, and the Fed has tools to slow its purchases without any kind of catastrophic collapse – long-term bond rates, inflation expectations, and other bellwethers all indicate no market worries.

Zach Pandl at Columbia Mgmt Investment Advisers estimates yields on 10-year notes would up to 1.25 percent higher without QE.

S&P 500 earnings are forecast to reach a record $109.30 a share in 2013 versus $61.79 in 2009.

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