Fed buoying asset prices again (and again)
Scared to death of debt deflation (economic depression) the governmental monetary authorities continue to radically manipulate asset prices.
Advocates of capitalism say that the pricing signals of the free market give objective guidance for the best allocation of productive resources. Risk-taking requires rewards in the form of high returns for success. Moral hazard requires threat of low returns (or even losses) for failure.
The idea of capitalist competition is: When a company takes on too much debt or fails to generate adequate revenues there should be consequences . . . like bankruptcy or bond defaults or stock price declines vis-a-vis more successful competitors. Bond and stock prices are the signals investors need to make allocation decisions.
Over the last several decades the Fed has just kept going further and further down the path of economic management and asset price manipulation. It’s not the old capitalist system . . . of risk rewards and price signals. Now the governmental money tree spews and buys and supports and buoys.
How long can this go on without consequences … ?
. driving returns very low
. enabling debt to keep growing
. fogging up moral hazard such that there will be a lack of caution and a misallocation of resources
