Friday, February 22, 2013

Prospect of rate rise

The dialogue on the financial channel is about the prospect of the US Fed withdrawing stimulus at some point in the future. The prognosticators always offer their outlook for the economy and the stock markets. Usually saying somthing to the effect that the US economy is improving and the rise in interest rates and withdrawal of Fed stimulus will be taken in stride and the economy will learn to walk by itself.


How long has it been since the US economy and the stock markets were not dependent on artificial stimulus and low interest rates? I think it has been about 25 years. The Reagan deficit spending was the original stimulus. Then the Greenspan years. The bust of 2000 led to an outright dependence on Fed stimulus. And now Bernanke is on the job for more of the same. I think this economy and this stock market is addicted to easy money.

The question is not how the economy will go on after stimulus wanes. The question is how the stock market will react to the prospect of that stimulus waning. It is that uncertainty that will drive prices. The debt has not been liquidated, after all. It has just been moved around.

Just thinking...... Bearish lately....


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