Bernanke Like Bartender Serving Drunks

This needs a little amplification. Our Federal Reserve Chief is being called on the carpet as a rampant enabler for debt addicts. The end will inevitably come, and according to Marc Faber, it won’t be pretty. From the International Herald Tribune:

The U.S. Federal Reserve Board acted “like a bartender” in lowering interest rates and its actions are contributing to a stock market bubble in the U.S., Marc Faber, the Hong Kong-based publisher of The Gloom, Boom & Doom Report, said.

“Each time you bail out, it becomes bigger and bigger, and the credit problems become much, much larger,” said Faber, managing director of Marc Faber Ltd. The Fed “feeds its customers with booze, and when they get totally drunk and are about to fall off their chairs, the bartender gives them more booze to keep them going. One day, it will lead to the ultimate breakdown.”

The Standard & Poor’s 500 index has risen 2.9 percent since the Fed cut its benchmark rate by half a percentage point on Sept. 18 to keep credit market losses from spurring a recession. Faber said the action spared U.S. financial companies like Citigroup from the consequences of bad lending decisions. [full text]

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3 responses

  1. Jesse from Cranston

    Certainly no surprise that Wall Streeters are finding ever new ways to create paper profits while the rest of us pay for it.

    What has caught my eye recently, though, is the idea that about 4 million homeowners who are subject to resetting “sub-prime” loans are the basis for some $2 trillion (that’s a ballpark estimate and may even be on the low side) in worldwide investment “vehicles” (AAA-rated bonds, commercial-backed paper, short-term loans among lenders, etc.) that fueled the recent bubble — and the scary thing is, they’re PRIVATE investment schemes that are NOT bound by the usual public reporting laws and oversight.

    As for foreign markets, they’re buoyed by the sluggish dollar and the expectation that America will be able to buy up their exports — neither of which is a permanent condition.

    Watch this holiday season’s sales figures. The REAL panic will happen once it’s clear that consumer (debt) spending can no longer keep the American economy afloat. Then the dominoes will fall (sorry for using the Cold War analogy), oil will top out at $120 a barrel, the US will face $5 a gallon gas, and W will just be going out of office saying he did great things for America. In other words, we’ll wind up paying for it, one way or the other.

    That being said, I’m still optimistic that America will survive, that our economy will reset to a degree, and that the revival of the middle class will equalize the great income disparity we’re seeing now.

  2. We will probably get through this holiday season fine — the fed will cut rates again. It’s when the rate is all the way back down to 1% that we’ll need to wonder what new trick the fed can perform to prop up the economy. Hopefully things will be better by then, but I wouldn’t count on it, as they are saying the housing deflation will continue for another 18 months to 2 years. Lots of empty inventory sitting on the market:

    http://money.cnn.com/2007/10/26/news/economy/vacant_homes/index.htm?postversion=2007102612

    Speaking of empty inventory, did anyone see the house in E. Greenwich featured in the Projo’s House of the Week this past week? Wow. It is absolutely gorgeous. Just goes to show you that I have ego problems as I started picturing myself living there. I had this whole fantasy worked out where my family and our best friend family would go in on it together, there’d be communal cooking and parties….but then I realized we’d be maxing ourselves out on mortgages. Plus we have a beautiful house and one of the nice things about it is that we are economically secure here. I can spend time with my children (only work part-time) and we don’t have to worry about the mortgage killing us. Domestic grandeur is nice if you can afford it, but financial anxiety does not make for happy families.

  3. Remember in 2006 when the price of gas started going down eight weeks before the election? Afterwards it went right back up. I think the Fed will cut interest rates and give big cash infusions to the market until the November ’08 elections are over.

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