pedrom727
04-03-2009, 02:50 PM
When the Fed came in and increased its balance sheet by $1.15 Trillion both these markets ripped to the upside at unbelievable speed. Does anyone else find it interesting that since that day, both Gold and Treasuries have traded substantially lower? This, in my opinion, is the clearest proof that no matter how hard it tries, the fed is powerless to control free markets.
What other bullish news than printing trillions upon trillions of dollars could the Gold bugs want? I believe we are on the path to a quite serious deflationary period. I am very worried with all the excessive measures and debt our country is undertaking solely based on Keynesian Theory. Every day portfolio managers and academics speak of hedging against inflation, and near term I have no doubt that the other commodities and stock market may display "reflation". This still does not change the fact that the longer term tendency is toward deflation, as trillions of excess credit comes out of the system and people realize that invesments have risk.
The redistribution of toxic asset losses from banks balance sheets directly to the tax payer can eventually cause a very substantial and violent populist movement. By using tax dollars to buy these horribly structured products we cannot increase their intrinsic value, but merely transfer the losses from private to public hands. I have a feeling that in 5 years when we look back at this period we will hopefully have learned that monetary policy is not effective. It pumps the gains on the way up and then leads to an even stronger fall which cannot be fixed simply by throwing more money at it. In short, we should make sure systemic risks are mitigated so we can live our every day lives. This does not mean noone can go bankrupt, it's only through this process that the stronger and smarter businesses can pick up a greater market share and lead us out of this. Apparently noone learned from the zombie banks of Japan.
What other bullish news than printing trillions upon trillions of dollars could the Gold bugs want? I believe we are on the path to a quite serious deflationary period. I am very worried with all the excessive measures and debt our country is undertaking solely based on Keynesian Theory. Every day portfolio managers and academics speak of hedging against inflation, and near term I have no doubt that the other commodities and stock market may display "reflation". This still does not change the fact that the longer term tendency is toward deflation, as trillions of excess credit comes out of the system and people realize that invesments have risk.
The redistribution of toxic asset losses from banks balance sheets directly to the tax payer can eventually cause a very substantial and violent populist movement. By using tax dollars to buy these horribly structured products we cannot increase their intrinsic value, but merely transfer the losses from private to public hands. I have a feeling that in 5 years when we look back at this period we will hopefully have learned that monetary policy is not effective. It pumps the gains on the way up and then leads to an even stronger fall which cannot be fixed simply by throwing more money at it. In short, we should make sure systemic risks are mitigated so we can live our every day lives. This does not mean noone can go bankrupt, it's only through this process that the stronger and smarter businesses can pick up a greater market share and lead us out of this. Apparently noone learned from the zombie banks of Japan.