THE DOG THAT DIDN'T BARK

The spectacular stock market boom underway is fueled purely by the Fed's massive money printing and has no connect to the real economy; the average return on stocks at about 20% a year is pure redistribution of wealth as it far exceeds the real return of the economy at about 0.8% a year.

The dismal growth performance shows the deep inefficiencies of the Fed's policies. A simple truth is growth and employment need real capital; Fed's money printing and near-zero interest rates have not made real capital more abundant. Will the fall in real per capita income be reversed through more of the Fed's money creation? This is what is promised by the Fed. Money creation is a panacea to all diseases and is the path to economic prosperity, says the US Federal Reserve. So then must be looting and counterfeiting.

A central banker can be as arrogant as they come and as obstinate as an ass. The Fed will keep printing trillions of dollars and forcing near-zero interest rates till the end of the world. The question of "where is inflation?" will have the usual answer: there is none.

Undeclared inflation will encourage borrowers to step up their borrowing. Borrowers are favored by near-zero interest rates, high true inflation, and by defaulting as usual on monumental loans. It is a free for all: grab as much as you can. As has become fully admitted, the Fed will buy all failing loans. It is wealth redistribution via the Fed's money printing.

Noureddine Krichene is an economist with a PhD from UCLA.

(Copyright 2013 Noureddine Krichene.)

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