TheChek News Flow

• very serious people who say QE will "Permanently Impair Living Standards For Generations To Come"
• other very serious people who are asking whether "was QE worth it?"
• even more serious people (and self-made billionaires) who observe that the Fed is "Destroying the Value Of Money" And "Uprooting The Basic Stability Of Society"
• other billionaires who note that "It's Tempting To Invest, But This Will End Very Badly"
• its supervsiors who accurately point out that "The Solution To Bubbles Is Not More Bubbles, It Is Avoiding Bubbles In The First Place"
• and of course, Paul Tudor Jones who repeated what we said 6 years previously when he said that the "Disastrous Market Mania" Will End In "Revolution, Taxes, Or War"

In a recent blog post, Mr. Bernanke wrote: “the best way to improve the returns attainable by savers was to do what the Fed actually did: keep rates low, so that the economy could recover and more quickly reach the point of producing healthier investment returns.”

This is circular reasoning: He is assuming that which he seeks to prove, namely that ultralow rates actually help the economy. But, that is the open question.

• I last spoke here three years ago and talked about what I dubbed the Fed’s Jelly Donut monetary policy. I observed that accommodative policy has diminishing returns that had long?since passed the point of being productive and was now actually slowing the recovery. I compared it to eating a 36th Jelly Donut.
• By keeping rates too low, the Fed sought to create a stock market wealth effect. I suggested that while this would increase income inequality, the wealth effect would not likely translate to enough additional consumption to offset the even bigger drain from lost income to savers.
• Policy makers and mainstream economists are stuck in GroupThink that easy money always helps the economy, despite basic economic principles that suggest diminishing or negative marginal returns.
• Swiss Re recently calculated that from 2008?2013, U.S. households lost $470 billion of income due to excessively low interest rates. Because savers perceive interest income as more recurring than volatile stock market gains, and because interest income is spread more broadly than equity gains, it’s fair to assume that a much greater proportion of interest income would be spent.
• Low interest rates make workers save more, as they can’t anticipate earning safe income on savings. They also make retirees spend less, as they have less current and future income and need to stretch savings over their remaining lives. Both dynamics create less spending and a slower recovery.
• The question is who benefits from the harm to savers? Of course, it is governments who are able to borrow more cheaply.
• I remain of the view that higher rates will surprise by improving the economy on Main Street even though it is quite possible they would create some turbulence on Wall Street, as most equities are now highly priced and a select group are in a bubble.

We have passed the point where Jelly Donut policy is merely slowing the recovery. Distortions are now adding risk to the banking and insurance markets and leading to poor incentives for the largest players in the financial system.

Monetary policy and regulations have combined like a failed chemistry experiment to create a potentially destructive force that should not exist outside of fiction.

I think this adds to the ultimate attraction of holding gold instead of green.