“A Total Illusion from QE and Financial Engineering”
The 10-Year Treasury Is Less Than You Think
When the Fed was created in 1914, it was set to task of controlling short-term interest rates in an attempt to iron out financial cycles. It succeeded for many years. But by avoiding the natural rebalancing (and occasional pain) from free markets, we just got a bigger bubble into 1929. Then, when it finally burst, we got the greatest depression in all of modern history!
Since the Fed and other central banks were created, they have always manipulated short-term interest rates to try to encourage borrowing and spending in slowdowns – to make the natural economic cycle “go away.”
And every time, it suppresses the economic cycles that were already in place, until finally they come roaring back.
So it always strikes me as funny to see highly educated, seemingly reasonable people in pin-striped suits and pantsuits stand in front of us and basically say that there’s a free lunch after all – that we can get something for nothing!
To them, economics is no longer a matter of supply and demand, free markets and rebalancing. They think we’ve found a way to program the economy so we never have a recession again.
All the apparent education and sophistication of these top economists, financial officials and central bankers boils down to this simple automaton explanation: if we don’t keep taking more of the financial drug that we used to keep the bubble going, like zero interest rates and QE, we will collapse and go into detox.
It’s the same logic of any extreme addict. When a serious drug addict comes off a high, he realizes the only non-painful choice is to take more of the drug.
As Charlie Sheen said: “the key to drinking is to not stop.”
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