Two assets my garden needs are sunshine and rain. Uncorrelated in their makeup, but correlated in what they do for the success of my garden...both are required to sustain life. Soil testing and amending the soil with the proper amount of fertilizers add alpha to the production. Hedging the rows with drainage, freeze protection, fencing, and mulch keeps the fat tail of extreme weather and the hungry bellies of unwelcome intruders under control. With that in mind, I switch to another garden of mine...my greenbacks.
I wonder if QE has altered the sunshine (stocks and other growth assets) or rain (bonds,cash and "non correlated" assets). Its seems to be, not a little, but a lot of both. Stock and bonds, uncorrelated assets at one time, have become over correlated in need. Both were starved for liquidity as a result of the vaccum of credit. Stocks needed consumer and corporate credit and bonds needed lending credit. QE, like my baesment dehumidifier, can magically pull liquidity credit out of ... thick air. My drier basement is O.K. with this arrangement, but my electric bill acknowledges that this is not a free lunch. If we can keep the QE dehumfidier pumping water out of the thick air of our nation's basement than the price of electricity can be paid for through the products of our nation's garden. This, to me, is the next real challenge...making our nation's garden productive again.
As a teacher of STEM (Science, Technology, Engineering and Math) I spend most of my day inspiring kids with cool challenges and fostering the seeds of their achievemnts so they might one day bloom along side the greatness of the others in society and grows a middle class that ultimately is the fruit of a nation's economic garden.
So before we pull away the QE floodlights and irrigation heads, let's be sure we have meaningful work in the garden.
Comments
Here's another (badly tortured) one - perhaps from a 3-Stooges skit. ... Stuff one cabinet drawer with subprime mortgages, highly leveredged speculative investments and lax regulation. Add some criminal intent for good measure. Out pop several other drawers containing crumbling investment banks, falling equities and deflating home prices. Patch things up by stuffing these drawers with unrealistically low interest rates, massive Fed bond buying, and federal pump priming. Out pop more drawers over-filled with soaring gold prices, skyward-bound EMs, and and the granddaddy of all bond bubbles. Cool these heated markets by loading another drawer full of conflicting Fed Governor statements about the approaching end of "QE". In response, the drawer stuffed with recently inflated equities begins to shudder violently - sending tremors throughout the emerging markets and recently recovering Japan.
On the backs of the senior class, right? I think that is what your thesis implies. Since retirees and those close to retirement are most inclined to be heavy bonds.
So, to help save the country from financial disaster, where everybody suffers...to help jump start economy...senior class to the rescue, involuntarily. Even if it means lining the pockets of the bankers who helped get us into trouble to begin with...although I suspect we were all a little to blame back in 2007.
Viewed that way, it certainly seems like a tax. Perhaps the Fed, an agency of wealth distribution in this case, thinks of it more as an excise tax? Windfall tax? 30 year bond bull run tax?
Perhaps too Fed motivation is to help reduce deficit, since US is paying a lot less for borrowing. So that even a moderate GDP means US will be paying down debt faster than creating it. Perhaps that self-interest will help postpone if not mitigate the tiller?
Is there any chance zero interest policy is here for the foreseeable future? Meaning 5 even 10 years down the road. And that this policy helps wean US out of the business of the fixed income provider...and back onto corporations, which ideally should be the creators of capital?
In any case, I really appreciate your thoughtful comments.
Anyway, it is a point of view which I do not agree. As government does not collect anything when interest is 0%. I sure think they wished they collected something to help balance the budget... Banks are benefiting but they are not government.
Accountants make a distinction between the portion of federal debt held by government institutions (like the Social Security Administration and Federal Reserve) and the portion actually held publically. As of 2011, the "public" portion was estimated at 9.49 trillion dollars. Of that, foreign investors held about 4.45 trillion, leaving the U.S. public with about 5 trillion dollars held through treasury purchases, mutual fund holdings, etc.
Each one-percent rate reduction on that $5,000,000,000,000 (five-trillion dollars) translates roughly to about $50,000,000,000 (fifty billion dollars) in annual interest savings for Uncle Sam - which Mo rightfully suggests comes out of our pockets in the form of minuscule rates of return on fixed-income investments.
Wikipedia link discusses the breakdown of federal debt owed to various entities (if interested). http://en.wikipedia.org/wiki/National_debt_of_the_United_States
Wow...very inspiring...nothing returns more dividends than a garden. Thanks!