Fed Driven Bubble Destined To End Badly

Reassurance from central banks is only emboldening investors to add to their risks. Regardless of what he says Fed Chair Powell has confirmed the Fed plans to continue its role as the great enabler. Every time the Fed signals more easing or that it will keep rates low it boosts the ability of other central banks to do the same and governments to add to their stimulus packages. This is why those demonizing the dollar may be wrong, if anything all fiat currencies that are under pressure from this expansion of the money supply. 

Central banks across the globe have been able to lower their rates or do additional stimulus without causing concerns their currency would crater. The fact that so many loans across the world are based and loaned in dollars means countries and businesses must buy dollars to repay their obligations. This puts a bit of a foundation under the dollar going forward. It could be argued the reason several countries have reduced their US Treasury holdings is not that the dollar is slated to fall but is more related to the fact they have problems at home and need dollars in order to service their debt obligations.

Adding to the complexity of money flows is that America's stimulus packages are simply putting more icing on China's cake and the other countries that enjoy a trade surplus with America. We are carrying the world on our shoulders. Rather than paying rent or making mortgage payments, it seems from the exploding trade deficit that Americans are taking much of the money they get from Uncle Sam and buying imported goods.   

When Powell attempts to explain his continued actions, many of us who pay attention to such things cry "Bullshit." Not only is the current Fed policy uncalled for but it does little to strengthen the economy or address our problems. What it will do is continue to prop up asset prices and encourage risk-taking and malinvestment. This is a big deal and will result in more negative interest rates across the world. Due to the artificially low cost of credit and an unsustainable increase in the money supply bubbles are forming everywhere.

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Adam Reynolds 1 week ago Member's comment

It's just magically not going to have an impact.