08-28-2013, 11:32 PM
(08-28-2013, 09:29 PM)kandrathe Wrote: The problem is most likely that the Fed (and all central banks really) have a credibility problem in helping to boost the economy. People are concerned that at the first sign of economic strength, the fed will undo it by tapering, or raising rates.
Hooray! Now we're speaking the same language. How to commit to low interest rates even when inflation starts to kick in? Certainly not by talking about "tapering".
Quote:So then, t-bills are the best paying liquid instrument for holding cash value, on a risk/reward basis. There are large amounts (about 1/2) of t-bills held to be denominated in U.S. dollars to hedge foreign exchange exposure. With a sluggish economy, stock picking is a risky uncertain investment. With a lack of consumption, most commodity prices are falling or pretty flat and have a pretty high volatility (risk). With the exception of those commodities which are in short supply.
Yes! Again, we are in agreement. Not enough safe assets, too high prices for the ones out there. Needed to anchor balance sheets in a time of turmoil.
But if all this is true, then surely the problem isn't that they've gone too far, but that they haven't gone far enough? This is an excellent opportunity for the government to borrow, convert existing debt, build/repair infrastructure, and make big one-off investments in things like research. It will give firms low-risk collateral for hedging, and it will give the government cheap funds. Until inflation starts rising, this is as close to free money as it gets.
-Jester