Not Even Orange?
Still, Dr.Yellen recently told a credulous Congressman that “I can’t see threats to financial stability that have built to the point of flashing orange or red.”
Not even orange? Apparently, green is the new orange. The truth is, the monetary central planners ensconced in the Eccles Building are terrified of another Wall Street hissy-fit. So they strive by word cloud and liquidity deed to satisfy the petulant credo of the fast money gamblers—namely, that the stock indices remain planted firmly in the green on any day the market’s open. It is not a dearth of clairvoyance, then, but a surfeit of mendacity which causes our mad money printers to ignore the multitude of bubbles in plain sight.
Actually, the Fed’s bubble blindness stems from even worse than servility. The problem is an irredeemably flawed monetary doctrine that tracks, targets and aims to goose Keynesian GDP flows using the crude tools of central banking. Yet these tools of choice— pegged interest rates and stock market puts—actually result not in jobs and income for Main Street but ZERO-COGS for Wall Street. And the latter is an incendiary, avarice-inducing financial stimulant that enables speculators to chase the price of financial assets to the mountain tops and beyond. So at the heart of our drastically over-financialized, bubble-ridden economy is this appalling truth: the speculator’s COGS—that is, his entire “cost of goods”—consists of the funding expense of carried assets, and the Fed’s prevailing doctrine is to price that at near zero for at least seven years running through 2015.
Pricing anything at zero is a recipe for trouble, but the last thing on earth that should deliberately be made free is the credit lines of gamblers and speculators. That is especially so when the free stuff—-repo, short-term unsecured paper, the embedded carry cost in options, futures and OTC derivatives—-is guaranteed to remain free through a extended time horizon by the central banking branch of the state. In that respect and even with tapering having allegedly commenced, just look at the two-year treasury benchmark. In the world of fast money speculation the latter time horizon is about as far as the eye can see, but the cost to play amounts to a paltry 37 basis points.
