CIO Vantage Point;
Economic Outlook
September 13, 2012 Posted by:
Joe Morgan, CFA
The views expressed in this column are solely those of the author and do not reflect the views of SVB Financial Group, or Silicon Valley Bank, or any of its affiliates.
The Fed announced another round of "quantitative easing" in the form of $40 billion of mortgage purchases per month until the labor market "improves substantially." The stated goal is to "increase policy accommodation" by driving down the cost of borrowing not only in the mortgage sector, but in other areas as relative valuations adjust.
Following Maslow's observation on problem-solving, the Fed continues to drive down the cost of funds, punishing savers, with the hopes of igniting activity by borrowers. But the holdup in our economy is not due to a high cost of funds, but a great deal of uncertainty.
By leaving this latest version of QE open-ended, they are adding to financial uncertainty while at the same time providing little to no value in the form of lower interest rates. In addition, the further the Fed delves into these new policies, the more complex and fraught with danger any exit strategy becomes.
But the Fed is a "hammer," and only sees a "nail" in the form of today's economic challenge. It does not understand that a screwdriver, or hacksaw (or Congressional harmony!) may lead to a better resolution.
The views expressed in this column are solely those of the author and do not reflect the views of SVB Financial Group, or SVB Asset Management, or any of its affiliates. This material, including without limitation the statistical information herein, is provided for informational purposes only. The material is based in part upon information from third-party sources that we believe to be reliable, but which has not been independently verified by us and, as such, we do not represent that the information is accurate or complete. The information should not be viewed as tax, investment, legal or other advice nor is it to be relied on in making an investment or other decisions. You should obtain relevant and specific professional advice before making any investment decision. Nothing relating to the material should be construed as a solicitation or offer, or recommendation, to acquire or dispose of any investment or to engage in any other transaction.
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When You're a Hammer, Everything Looks Like a NailSeptember 13, 2012 Posted by: Joe Morgan, CFAThe views expressed in this column are solely those of the author and do not reflect the views of SVB Financial Group, or Silicon Valley Bank, or any of its affiliates.
The Fed announced another round of "quantitative easing" in the form of $40 billion of mortgage purchases per month until the labor market "improves substantially." The stated goal is to "increase policy accommodation" by driving down the cost of borrowing not only in the mortgage sector, but in other areas as relative valuations adjust.
Following Maslow's observation on problem-solving, the Fed continues to drive down the cost of funds, punishing savers, with the hopes of igniting activity by borrowers. But the holdup in our economy is not due to a high cost of funds, but a great deal of uncertainty.
By leaving this latest version of QE open-ended, they are adding to financial uncertainty while at the same time providing little to no value in the form of lower interest rates. In addition, the further the Fed delves into these new policies, the more complex and fraught with danger any exit strategy becomes.
But the Fed is a "hammer," and only sees a "nail" in the form of...
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