Classical economists going back to Adam Smith have regarded the production of products and services as the "real economy" and money and credit as the "symbol economy."
1) Perhaps the Federal Reserve should barrow from Madison Avenue to convince and "forward guide" investors. After all, their mission is all about convincing people (similar to a confidence or con man) and Ben Bernanke noted that he underestimated the "wizard of oz" aspect of being Fed Chairman.
2) How efficient is it to have businessmen and investors acting like drug addicts-getting high-getting -so they do it again and again until a bubble crashes? The incentives surrounding deal-making lead to bubbles because there is no reward for not doing a deal. Deal makers become overconfident, but they still the same person underneath the success or failure, with the same ability to assess the market. The stock market rally has perhaps rewarded people for being at the right place at the right time and not for making investments that increase productivity.
3) Since the US saving rate declined greatly after credit cards were introduced in the early 1970s, how were we able to lend so much more over that period?
4) A previous Seeking Alpha article, argues that risk aversion is responsible for savings deposit growth in the US moving from $4 trillion at year-end 2008 to $7.1 trillion today. It is argued that this money could become a stampede into assets unless the Fed raised interest rates to temp investors back. Interestingly, $3.2 trillion is the amount of QE over that time frame.
5) Is the repo market (which also creates credit) being squeezed by the Fed buying Treasuries and therefore can't be used as collateral and to rehypothecate causing slow growth as Andy Kessler suggests? He believes that $5Tillion could have been created over the QE term.
6) The private sector creates, or 'prints', more money than the public sector. While the Fed has been printing money, banks have been hoarding it rather than putting it to use due to the weak economy and capital requirements caused by uncertainty due to unconventional Fed policy.
7) Should interest rates move with the supply and demand for money? What is the best way to control the supply? Is it through the Fed or simply through the private sector? Are bankers the best arbiters since they are in the private sector? Are their incentives straight? Are fees still blinding their views towards making good loans? Fees or bonuses should be made when a loan is successfully retired by the borrower-not at origination and not when sold off to a secondary party. The incentives should be for making a quality loan.
8) The reason Fed policy doesn't work is that they are manipulating the supply (M2) and price of money at the same time. The mismatched results are either inflationary or deflationary. Demand for loans can be seen as economic activity (closely related to productivity perhaps). The Fed should keep track of the supply and make sure it is not getting out of control relative to demand. It should therefore check FDI or hot money flooding the market along with the Treasury. It should not set interest rates. Is this the reason for the so-called liquidity trap?
9) If low interest rates lead too low savings rates, then there should be less leverage (or less fractional reserve lending) and no base to build the pile, yet the incentives to lend would be high.
10) Are Central Bank Reserves a way to keep supply and demand dynamics in place since the gold standard has broken down? Why are exchange rates and interest rates governed by people and not markets?
11) Economies grow through innovation and invention these occur regardless of the rate that banks are charging.
12) Deflation is partially caused by the destruction of debt (through default or bankruptcy) relative to new loans. How a bankruptcy is handled should determine how quickly an economy can recover. This is part of Europe's problem as most real estate lending is recourse. China doesn't have this problem apparently as bad loans are often pushed into new entities and forgotten.
13) The recovery has been slowed down a regulation that allows special servicers (who have obtained conduit loans-derivatives and synthetics that are not bank owned) to hold those real estate loans and charge fees for three years before they must dispose of the asset or face huge tax consequences. So of course they hold charge as much as they can. The incentives created of course have nothing to do with the state of the economy or whether there are better alternatives for the cash that can be generated by the sale.
14) The Marxist system left behind a bunch of monopolies to be exploited. (There was only one entity available to sell local grain to, for instance). This has led to the oligarch's immense individual wealth. However, Russia must watch with envy as China's state run economy has created immense wealth for the state. Vladimir Putin must imagine the power the State could have with SEOs. One third of China's billionaires are Communist Party members
15) Along the lines of monopolistic competition-it is created in countries where education is lacking and people can't compete (which would lowers prices) and monopolies therefore develop. Since it is hard to expand a business and harder to get started, most are subjected to the daily grind of poverty and unstable prices. Competition helps ease inflationary pressure.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.