July 30, 2012 Comments

Markets were somewhat weak today. There is some anticipation that the Fed further “stimulate” the economy at a meeting this week.

To my mind it is idiotic for the Fed to continue to try to drive down interest rates. They are already about the lowest in recorded history.

And low interest rates, while they help borrowers and stock prices and house prices inflict enormous pain on those trying to live on the interest from money in the bank. Low interest rates have succeeded in killing off many defined benefit pension plans and severely wounding most of the rest. (At least if the ultra-conservative methods of calculating the pension liability are relied on). Similarly low interest rates are almost death for life insurance companies and make it harder for banks to earn profits.

A far more logical form of stimulus, if that is what is wanted would be federal spending on public works such as roads. Unfortunately the federal government is already over-spending and in many cases not getting much for its dollar (wars in foreign places, rescuing large corporations…)

I suspect the Fed has caused quite enough damage already and not continue the madness of buying up U.S. government bonds and should think about unwinding some of what it has already done.

It’s also very hard to fathom why the Fed should care about the stock market. It is no part of the Fed’s job to stimulate the stock market.

And mature investors know that stock markets fall as well as rise even if over long periods of time they do rise. Trying to stop natural dips in the market is idiotic. If the Fed is trying to do that, its leaders should be fired.

It is ironic that in a so-called free market, the price of money itself is being manipulated down.