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Thursday, March 28, 2024

Is the Fed in Control? If So, Control of What?

Courtesy of Mish.

Reader Richard is wondering about a statement I made in Problem is Demand: First IBM, then Intel, now Google.

Specifically Richard questions my statement “In spite of what everyone seems to think, the Fed is not really in control of much of anything”.

Richard writes …

Hi, Mish

I am a big fan of yours but I am shocked, however, by your quote in my subject line. How can you say that when the Fed totally controls everything in the financial markets not only in the U.S. but much of elsewhere in the world? It is single-highhandedly propping up the U.S. equity market, rendering bond vigilantes ineffective in the bond market, and creating an “echo real estate bubble” at will!

Hoping to hear an elaboration from you in your next blog.

Regards, Richard

No Echo Bubble in Housing

Hello Richard, for starters, there is no echo real estate bubble.

Home sales are at depressed levels, financial institutions are still overloaded with hugely underwater properties, and prices have bounced a bit in some areas, by 5-10% bounces following 50-60% declines hardly constitutes an echo bubble.

Had Richard said the Fed created an echo bubble in stock prices, I would have agreed. Let’s step back a second and look at the three primary things the Fed wants to accomplish.

Three Things Fed Desperate to Accomplish

  1. Stimulate Credit 
  2. Stimulate Jobs
  3. Stimulate Housing

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