The Motley Fool Discussion Boards

Previous Page

Investment Analysis Clubs / Value Hounds

URL:  http://boards.fool.com/hey-denny-quotif-the-fed-manages-to-undo-this-30606585.aspx

Subject:  Re: Lies, damn lies and CPI Date:  3/25/2013  8:24 PM
Author:  TMFKMHinson Number:  14045 of 22994

Hey Denny...

"If the Fed manages to undo this then all that has happened is that taxpayers replenished bank reserves -- a hidden tax."

That's an awfully big "if", isn't it? They couldn't see that the subprime meltdown would spread to the general economy a full year after it began. Now they've put us past the extreme boundaries of historical monetary policy... in an experiment without precedent... and we have to cross our fingers and hope that they will be able to perfectly reel us in, extricate us without consequence and time it correctly to boot? Color me skeptical.

Velocity is low because interest rates are low and depressed cost of capital allows banks/institutions/etc. to sit on mountains of under-performing and low-yield assets indefinitely. When interest rates normalize, velocity goes up as they can't cover their cost of capital anymore and have to invest in more productive assets. Garbage businesses will die