Average American savers and investors in or near retirement are being forced by the Fed's zero-rate policy to take greater investment risks. To get even modest interest or earnings on their savings, they move out of safer assets such as money markets, short-term bonds or CDs and into riskier assets such as stocks. Either that or they tie up their assets in longer-term bonds that will backfire on them if inflation returns. They're also dramatically scaling back their consumer spending and living more modestly, thus taking money out of the economy that would otherwise support growth.
We've also seen a destructive run of capital out of Europe and into safe U.S. assets such as Treasury bonds, reflecting a world-wide aversion to risk. New business formation is at record lows, according to Census Bureau data. There is still insufficient confidence among business people and consumers to spark an investment and growth boom.
In short, the Fed's actions, rather than helping, are having the perverse effect of destroying the confidence of businesses and individuals to invest and the willingness of banks to loan to anyone but those whose credit is so strong they don't need loans.
Posted by | 2.06.2012 at 3:46 PM
America's grandfatherly champion of the small investor on the Dirty Fed: