It seems the head of the Federal Reserve is hell bent on bringing long-term interest rates down even further, even though his policy of zero short-term rates is having no effect on jobs growth or producing any signs of recovery in the housing market.
The sad part about it is, he just cannot do simple math. If the savers in the USA are starved of interest rates then their disposable income disappears. This means they have no money to spend on consumer items. This has a knock on effect of bringing down a big chunk of the GDP of the country, which in turn, adds to a lowering of economic predictions and festers the doom and gloom scenarios.
The latest statements from the Federal Reserve are fear laden and do nothing to instill confidence that things can get better. Corporate America is doing well as many companies serve a global market place but this will not spark up the US economy. Japan has been mired in low growth for twelve years due to the low interest rate policy and it does not have the massive USA 16 trillion dollar debt burden.
The only way investors will continue to buy 30-year long-term bonds that yield a paltry 3.2% is by fear of a global collapse, which is the last thing the fed chairman wants unless he has become a financial terrorist.
It makes sense to reverse the low interest rate policy now, before it is too late, as the USA seems to be following Japan into years of low or no growth.
The USA is built on entrepreneurs with the courage and conviction of the founding fathers. Two qualities that Mr. Bernanke seems to lack. By being obsessed in attempting to evade a depression, he has become an ostrich that cannot take his head out of the economic quicksand, to see the way forward by a more positive approach, rather than fear laden ones. As the old saying goes “As a Man thinketh so shall it be.”
There is a light of hope as the chairman of the Texas Federal Reserve seems to have more foresight and confidence in the USA and he believes interest rates need to go up, not down, to restore confidence. Maybe he can gather more support among the board members?
The good news is there are sound places to park money while the Federal Reserve learns to do the math homework. Large-cap stocks such as; Intel (INTC
), Microsoft (MSFT
) and Cisco (CSCO
) can produce decent growth and dividends in the coming years and are at this time, a safer haven than long-term treasuries that will have to go up substantially in the future to accommodate a 16 trillion dollar deficit. Which will no doubt bring a big danger for investors in the treasury bubble. For it is not a case of if the treasury bubble will burst, but when. Disclosure:
I am long INTC