Monday, May 13, 2013

Fed to Begin Economic Balancing Act?

There appears to be a change in the wind! Over the weekend, Jon Hilsenrath, in his article in the Wall St Journal, indicated that the Federal Reserve is going to begin to reduce its creation of money to purchase US government bonds. Both stocks and bonds are lower as a result. And this is taking place just as both the US and global economies are showing signs of renewed weakness.

I wonder if the Fed is doing this solely as a superficial way of talking the stock market down from the edge of the cliff, without any real substance, as was Alan Greenspan's "irrational exuberance" remark. Why the Fed would do this now doesn't make much sense, unless they realize that they are creating greater risk by causing investors to ignore all risk. This is going to be a very perilous high wire act at the most difficult moment of the last four years.

And thus begins an economic balancing act, after Mr. Bernanke has effectively painted us into a corner! Good luck with that!