John Kemp: ONE LAST SUPER-BUBBLE
(Reuters)â Like the sorcererâs apprentice, Federal Reserve Chairman Ben Bernanke and his predecessor Alan Greenspan have unleashed a series of ever-larger asset bubbles they cannot control.
Now the Fedâs decision to cut interest rates to between zero and 0.25%, coupled with a promise to keep them there for an extended period, and the threat to conduct even more unconventional operations in the longer-dated Treasury market risks the biggest bubble of all, this time in U.S. government debt.
[...]
The problem is that if the unconventional monetary policy works, and the economy picks up, the Fed will come under pressure to ânormalizeâ rates and reduce excess liquidity to prevent a rise in inflation. The resulting rate rises will inflict massive losses on anyone who bought bonds at today 2.25% rate.
Bizarrely, Bernanke and Co are in fact inviting investors to bet the policy will fail, the economy will remain mired in slump for a long period, deflation will occur and interest rates will remain on the floor, as Japanâs have done since the 1990s.
[...]
http://www.financialweek.com/apps/pbcs.dll/article?AID=/20081226/REG/812229993/1036
(Reuters)â Like the sorcererâs apprentice, Federal Reserve Chairman Ben Bernanke and his predecessor Alan Greenspan have unleashed a series of ever-larger asset bubbles they cannot control.
Now the Fedâs decision to cut interest rates to between zero and 0.25%, coupled with a promise to keep them there for an extended period, and the threat to conduct even more unconventional operations in the longer-dated Treasury market risks the biggest bubble of all, this time in U.S. government debt.
[...]
The problem is that if the unconventional monetary policy works, and the economy picks up, the Fed will come under pressure to ânormalizeâ rates and reduce excess liquidity to prevent a rise in inflation. The resulting rate rises will inflict massive losses on anyone who bought bonds at today 2.25% rate.
Bizarrely, Bernanke and Co are in fact inviting investors to bet the policy will fail, the economy will remain mired in slump for a long period, deflation will occur and interest rates will remain on the floor, as Japanâs have done since the 1990s.
[...]
http://www.financialweek.com/apps/pbcs.dll/article?AID=/20081226/REG/812229993/1036