Friday, September 25, 2009

Dissention at the FED?

Federal Reserve Board Governor, Kevin Warsh, indicated in a Wall Street journal Op-Ed piece that interest rates will have to be raised sooner than expected.

The Fed Governor's comments confirmed on-going thoughts that the Fed's stimulous policy will lead to massive inflation in the future. Dropping interest rates to low level for extended periods of time have resulted in the previous bubbles we have been living through, first the high tech bubble and most recently, the real estate bubble. Easy money is the cause for asset run ups of the past and today looks no different. Stocks, bonds and hard assets have been soaring despite questionable fundamentals.

The Fed is fearful that raising interest rates and taking cash out of the system too soon could lead to a double-dip recession. Despite all of the hype that the economy is recovering, there is still doubt about removing it from life support.


Record High Bad Bank Debt is still an issue. Despite soaring bank prices, there are big problems still on the horizon. Many expect another wave of mortgage defaults in 2010. China has already warned the US several times about reckless spending. Seems senseless to me to invest in US Treasuries at 4% or less when the dollar continues to devalue without end.


In fact, banks do experience the wave of mortgage defaults, large loans default, Ginny and Fannie Mae default, the FDIC defaults and China stops buying our debt? Am I paranoid? Is this totally out of the question? When are we going to face up to the fact that banks are still in lots of trouble and the US Government is ALL IN in guaranteeing that they don't fail. When the banks fail, well, the US Government will also fail. Who is going to bail us out?


If you have any thoughts on this issue, pro or con, please comment. I'd like to know what readers think. Thanks

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