Friday, March 20, 2015

Bulls’ Fed

Over the last year, between the Federal Reserve “taper” and the European Central Bank launching their own QE misadventure in February, the euro had lost a quarter of its value against the dollar—until Wednesday. The dollar lost 2.4 percent of its value against the euro Wednesday, bucking the year-long trend. So what gives?

For weeks people’s expectations have been that the Fed will move closer to raising interest rates for the first time in 10 years. The reality was sinking in that the free money pump was being turned off as it couldn’t stay opened forever. American stocks reacted accordingly, like they had actually hit their peak and had nowhere to go but down.

Those expectations of tightening Fed policy abruptly changed with the Federal Reserve downgrading its economic outlook on Wednesday. Surprise, surprise, the “longest period of job growth in American history” is a phony boom, fueled by wage stagnation, fascist demand-side stimulus, and low cash velocity.

Because this is opposite world, the Fed’s revised forecast means the more determinative force in this weak socialist economy, monetary policy, will continue to be loose for the foreseeable future to stimulate demand, which is all Keynesians know how to do. That is, there is no imminent, mid-summer interest rate hike. Thus, the $4 trillion bandwagon stayed to yoked equities where they are assured to earn better than zero interest. Stocks responded accordingly, jumping 2 percent, and currency traders dumped their dollars for euros, among other currencies.

Investors are bullish again, but savers don’t have the luxury of betting their savings on equities. The safest bet has always been low-risk interest-earning accounts, which in normal circumstances outearn inflation. These aren’t normal circumstances, though. Who knows when things will return to normal?

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