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Tom Mongan, CFA  

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  • The Fed Charges On . . . But Why? [View article]
    To both Asbytec and Sama81, I'm glad to see there are people who think as you do. Too bad there are not more who will criticize the culprits in our national (and world) economic morass. In my frustration I am sometimes tempted to "vote 'em all out of office." But who would we put in heir place? Individually, our congressional reps and senators may have good resumes, but the collective product is miserable. Your "re-elected" comment is on target. Often they seem willing to let the system fail rather than risk damage to their own trademark.

    The result is that the president and congress, who are the guardians of fiscal policy, default to Bernanke and the Fed, hoping that monetary policy will somehow resolve the problems that they have created. That can't work. The leadership that Obama promised us four years ago never showed up, and his re-election will ensure that it never will.
    Oct 3, 2012. 11:10 AM | 1 Like Like |Link to Comment
  • The Fed Charges On . . . But Why? [View article]
    Most Americans who read the headline or hear on the evening news that the Fed is buying mortgage backed securities will probably never think of the sequence that follows those purchases. Intermediate and longer term bond rates, including mortgage rates, may go lower, but until someone on the other side of the transaction decides to put their new cash to work, it will be, as you say, just idle money.

    Think of the old adage about leading a horse to water. If she still won't drink, adding more water is probably not going to do much good. Before we can expect a change in the game, we need to see more confidence in both the consumer and business sectors. As another reader has pointed out, employment is an important part of this, but given the slow pace of U.S. and world GDP growth, we cannot expect much of a boost from employment until attitudes improve.
    Oct 2, 2012. 10:11 AM | Likes Like |Link to Comment
  • The Fed Charges On . . . But Why? [View article]
    Thanks for the comments, Sam. All excellent points. Unlike traditional Open Market operations, this doesn't add to the already bloated money supply, but their hope is that these purchases may lower mortgage rates and other intermediate-term borrowing costs. That might induce activity, although I can't imagine that a 0.25% drop in mortgage rates can matter much when the base rate is already ridiculously low by historical standards.

    I disagree on one point; most of this money probably does make it into the system. But that cannot matter when confidence is low, and that is not likely to change with Washington's present leadership. We (you and I) probably both sound like Keynesian retreads with our emphasis on the consumer, but this looks like a classic case of the "liquidity trap." There comes a point when rates, no matter how low, do not serve as an inducement because the confidence just is not there. Employment matters, but our problems are running far deeper.

    Bernanke can't do this alone. Until Congress and the President do their part, which is fiscal policy, we are just treading water.
    Oct 1, 2012. 09:31 AM | Likes Like |Link to Comment
  • Contrary to conventional wisdom, says Citi's Tom Fitzpatrick, it's consumer sentiment that drives equity markets, not vice versa. To him, the turn lower in consumer confidence (not yet showing up in stocks) suggests the market is headed down - perhaps revisiting the lows of 2011.  [View news story]
    There are plenty of reasons to be wary of market levels, starting with Europe's woes. But look at the positives. Our cash levels continue to hit new highs, consumers are deleveraging to levels that we should have had five years ago before the euphoria of endless growth overwhelmed good judgment, we are finally engaging in serious debate about national debt levels and stock prices (P/Es) are unusually low. Any price drop will be a buying opportunity.
    Jun 27, 2012. 12:19 PM | Likes Like |Link to Comment
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