With interest rates of 4, 5, 6%, the stock market did very well for decades. In the wake of the Great Recession, peaking in 2008, the Fed, led by Ben Bernanke, appropriately lowered interest rates to near zero and then never raised them when the economy recovered. Janet Yellen, taking over as Fed Chairman in 2014, has repeatedly spoken of raising rates. Like Bernanke, she listed economic goals to be set before raising rates. Those goals in employment in particular were repeatedly met and ignored. The rate-raise mantra was: Maybe next month, or a few months. Things aren't quite as good as they need to be.
This inaction, crippling to the less well off, dependent on mutual funds and savings, has been a boon to investment bankers, hedge funds and a high percentage of corporations. The stock market in its second-longest bull market in history was spectacularly over overvalued and over-leveraged before Bernanke left and has continued to be so during Yellen's tenure.
Former Fed chairman, Alan Greenspan, was facile in his ability to raise and lower interest rates according to economic conditions. He did well in helping to control what he called the stock market's irrational exuberance. Alas, Greenspan missed the bloated and often-crooked real estate boom preceding the crash of 2007-2008 and lost credibility. But, at least he tried during his terms as chairman to somewhat control stock market speculation.
Remembering Alan Greenspan's willingness to get ahead of the curve and lower interest rates when the economy looked shaky, where do we go now with interest rates near zero? We appear to be entering a bear market, and the Fed has no interest-rate leverage. Bernanke and Yellen are now guilty of two mistakes: (1) Not raising rates to match vastly improved economic conditions, and (2) Not raising rates to leave room to lower them when things got bad, which may now be happening.
Feel bad. Read my books and feel better. http://amzn.to/19QmSVH
No comments:
Post a Comment