Tags: Eisinger | Fed | recovery | easing

ProPublica’s Eisinger: Fed Has ‘Kindled Speculation’

Friday, 19 Apr 2013 08:04 AM

By Dan Weil

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The Federal Reserve hasn’t been able to produce a strong economic recovery with its massive easing program, but the central bank has ignited a worrisome boom in financial markets, says Jesse Eisinger, a reporter for ProPublica.

The Fed has increased its balance sheet by more than $2 trillion over the past five years and pushed short-term interests down near zero.

“Supposedly all of this [easing] will drive a self-sustaining economic recovery,” Eisinger writes in an article co-published in The New York Times, by raising “inflation expectations, spurring people to buy and companies to invest today instead of waiting until tomorrow.”

Editor's Note:
 
Unthinkable Haunts Investors: Evidence for Imminent 90% Stock Market Drop. 

“Instead, the Fed has kindled speculation. Investors are desperate for yield and are paying up for riskier assets. In areas like real estate, structured finance and equities, the markets are ahead of the fundamentals.”

Eisinger doesn’t think we’re in bubble territory yet. “But I would call it the Dysplasia Stage, abnormal growth that looks pre-cancerous.”

Culture and psychology are just as important as economics and finance are, he says. “We seem to have unlearned what real growth is and simply substituted speculative bubbles. Policymakers are either paralyzed or barrel forward because this is all they know how to do.”

And the wealthy have been the principal beneficiary, Eisinger notes.

Steve Forbes, chairman of Forbes Media, offers even more pointed criticism of the Fed, accusing it of wreaking havoc in asset markets and the economy.

“[Fed Chairman] Ben Bernanke has pulled off a neat trick that could well give us the worst of all worlds: a brief commodity deflation, future inflation and a stagnant economy,” he writes on Forbes.com. “It will earn him a prominent place in the central bank’s Hall of Infamy.”

Editor's Note: Unthinkable Haunts Investors: Evidence for Imminent 90% Stock Market Drop. 

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