Editor's Note: No one understands the complex, unhealthy relationship between the Federal Reserve, Wall Street, and the economy better than Lee Adler at the Wall Street Examiner. He just caught The New York Times trying to put a positive spin on the Fed's terrifying post-ZIRP plans. You need to know what's really coming next…
After seven long, strange years, we're now looking at the end of ZIRP as we know it.
And good riddance, too. It's been a disaster for the U.S. economy, the middle class, the housing market – just about every facet of American economic life has suffered from this fiscal disaster masquerading as coherent monetary policy.
But what's coming next has the potential to be even worse, though you'd never know it if you read the paper…
You see, the Fed counts on a corps of enthusiastic financial media cheerleaders to parrot its company line. In fact, The New York Times just published one of their explainers discussing just how the Fed would raise interest rates should it decide to do so.
Of course, like everyone in the Fed's "Amen Corner," the author carefully avoids the subject of just how the Fed would raise rates when there's $2.6 trillion in excess cash parked in the banking system – if there's a reason why rates are zero and borrowing money is virtually free, that is it.
Never mind that common sense (not to mention the Law of Supply) suggests that, when there's too much of a good, the supplier of that good loses the ability to raise its price without a massive increase in demand for the same.
But when did common sense ever stop the Fed or its slavish propaganda wing? It would be funny – if the consequences for every American's money weren't so dire.
Here's what I mean…
Welcome to the "Bribe-a-Bank" Interest Rate Policy
In this excerpt, the Times relates a key component of the Fed's post-ZIRP plans with a straight face, utterly failing to call the new policy being mooted what it really is: simple bribery.
"For the last seven years, the Fed has encouraged financial risk-taking in the service of its campaign to increase employment and economic growth. By starting to raise interest rates, the Fed intends to gradually discourage risk-taking.
"The straightforward part of the plan is persuading banks not to make loans.
"In a serendipitous stroke, Congress passed a law shortly before the financial crisis that let the Fed pay interest on the reserves that banks kept at the Fed. Written as a sop to the banking industry, it has since become the new linchpin of monetary policy."
The Fed will "pay banks not to lend." This is the essence of why it is akin to bribery.
Of course, the Fed has no realistic alternative here, because it has made the markets completely dependent on zero interest rates and quantitative easing.
Nobody can reasonably claim to know what will happen when the Fed takes away the easy money because it's never been done before under similar circumstances.
The Fed, and Wall Street, too, are terrified of the unknown. So they're averse, even afraid, to do what is absolutely right and indeed essential for restoring sanity in incentives for rational investment decisions – rather than the rank speculation and financial market distortion we've endured for the last seven years.
But the economy's long, dark night isn't over yet…
The Taxpayers' High Costs Could Get Even Worse
About the Author
Financial Analyst, 50-year charting expert, finance + real estate pro, and market analyst; published and edited the Wall Street Examiner since 2000.