Fed Wearing Blinders

The Fed has just fueled the treasury bubble even more….just like they fueled the housing bubble after the stock bubble burst

They keep trying to fix the wrong problem. Instead of letting risk get priced back into the economy, they just keep trying to shift the excess risk around. They are robbing Peter to pay Paul by pushing rates excessively low to stimulate risk taking, and they just don’t see it. You can only entice people to take excess risk for so long. For over a decade people learned that excess risk brought great pleasure, but now they feel excess risk brings great pain and you can’t overcome that by making it easier for them to take excess risk again….it is basic psychology. The Fed have become so stuck on the mindset that monetary policy is done a specific way every time, they have stopped looking at the underlying problem to see if the traditional approaches make sense. They have also come to the false conclusion that booming speculative markets make for a booming economy, when it has to be that a booming economy makes for booming speculative markets. They are putting the cart before the horse.

10 years from now, it’s quite possible that Ben Bernanke will be labeled “the man that killed capitalism.”