The sad truth is that the primary function of the Fed and Treasury has now become the sustention and expansion of disastrous asset bubbles. In fact, while Mr. Bernanke officially acknowledges QEs one through three, the truth is he has embarked on QE V. What's QE five all about? Putting a lid on U.S. Treasury yields.
The reason for this is our anemic economic recovery has been predicated upon artificially boosting consumption, which is 70% of US GDP. That consumption is, in turn, predicated on borrowing; because we don't have any real income growth on the part of the consumer. The borrowing has been predicated on government's ability to build upon the asset bubbles in stocks, bonds and real estate. And the creator of all these bubbles is our central bank, which is the progenitor of this deadly-addictive cycle. The Fed does this by providing ultra-low interest rates and through the massive monetization of government debt.
To prove we have learned nothing from the previous Great Recession; we now have a situation where the FHA will most likely need a $1 billion bailout for the first time in its 79 year history. But why do taxpayers have to bail out the FHA, which provides insurance to lenders such as banks and other financial institutions? The reason is because our government has once again compelled lenders to make loans with next to nothing for a down payment, to individuals who can not afford to purchase a home--doesn't this all sound chillingly familiar? Therefore, we have subjected ourselves to yet another bubble in housing, where home prices are once again rising at double-digit rates and marginal home owners are just a few points higher in interest rates from foreclosure.
It's not just house prices which are in back in a bubble. Stock prices are also growing at ...