Best of the Week
Most Popular
1. Climate Change Mass Extinction - Birds, Bees and Bugs: Going Going Gone - Richard_Mills
2.A Purrrfect Gold Price Setup! - Peter_Degraaf
3.Who Finances America's Borrowing? Recession Indicator for Independent Thinkers Part 2 - F_F_Wiley
4.America’s One-sided Domestic Financial War - Raymond_Matison
5.Gold Price Summer Doldrums - Zeal_LLC
6.Two Key Events Will Unleash Gold - Jim_Willie_CB
7.Billionaire Schools Teacher in NAFTA Trade Talks - Richard_Mills
8.Get Out Of Crypto Cannabis Bubble Before It Pops and Move Into Bargain Basement Miners - Jeb_Handwerger
9.Stock Market Could Pullback for 1-2 weeks, But Medium Term Bullish - Troy_Bombardia
10.G7 Chaos, Central Banks and US Fed Will Drive Stock Prices This Week - Chris_Vermeulen
Last 7 days
Proprietary System Shows Stock Market Rally Could Extend Higher - 23rd Jul 18
The Global Cannabis Market Is Set To Explode - 23rd Jul 18
The Death of the US Real Estate Dream - 22nd Jul 18
China is Now Officially at War With the US and Japan - 22nd Jul 18
You Buy the Fear in Gold - 22nd Jul 18
Trumponomics Stock Market 2018 - The Manchurian President (1/2) - 21st Jul 18
The Death of Japan's Real Estate Dream - 21st Jul 18
SMIGGLE Amazing Mega Shopping Haul, Pencil Cases, Smigglets and Giant Back Packs! - 21st Jul 18
Cayton Bay Beach Caravan Park Holiday - What's it Like? - 21st Jul 18
Gold Stocks Investment Wanes - 20th Jul 18
Diversifying Your Stock Investing Strategies is Smart Investing - 20th Jul 18
Custom Global Stock Market Indexes May Be Sounding Alarms - 20th Jul 18
S&P 500 Just 2% Below Record High, But There's More Stock Market Uncertainty - 19th Jul 18
Stock Market Technical Picture - 19th Jul 18
Gold Market Signal vs. Noise - 19th Jul 18
Don’t Get Too Bullish on Gold - 19th Jul 18
Bitcoin Price Rallies to Upper Channel – What Next? - 19th Jul 18
Trump Manchurian President Embarrasses Putin By Farcically Blowing his Russian Agent Cover - 19th Jul 18
The Fonzie–Ponzi Theory of Government Debt: An Update - 19th Jul 18
Will the Fed’s Interest Rate Tightening Trigger Another Financial Crisis? - 18th Jul 18
Stock Market Investor “Buy the Dip” Mentality is Still Strong, Which is Bullish for Stocks - 18th Jul 18
Stock Market Longer-Term Charts Show Incredible Potential - 18th Jul 18
A Better Yield Curve for Predicting the Stock Market is Bullish - 18th Jul 18
U.S. Stock Market Cycles Update - 18th Jul 18
Cayton Bay Hoseasons Caravan Park Holiday Summer 2018 Review - 18th Jul 18
What Did Crude Oil - Platinum Link Tell Us Last Week? - 17th Jul 18
Gold And The Elusive Chase For Profits - 17th Jul 18
Crude Oil May Not Find Support Above $60 This Time - 17th Jul 18
How Crazy It Is to Short Gold with RSI Close to 30 - 16th Jul 18
Markets Pay Attention Moment - China’s Bubble Economy Ripe for Bursting - 16th Jul 18
Stock Market Uptrend Continues, But... - 16th Jul 18
Emerging Markets Could Be Starting A Relief Rally - 16th Jul 18
(Only) a Near-term Stock Market Top? - 16th Jul 18
Trump Fee-Fi-Foe-Fum Declares European Union America's Enemy! - 16th Jul 18

Market Oracle FREE Newsletter

5 "Tells" that the Stock Markets Are About to Reverse

The Fed Has Undermined the US Economy’s Ability to Grow

Economics / US Economy Jun 28, 2017 - 06:17 PM GMT

By: John_Mauldin

Economics

BY STEPHEN MCBRIDE : The Fed’s hope was that quantitative easing would stimulate economic growth. But a former senior economist for the Fed believes it has done the exact opposite.

Speaking at the Mauldin Economics Strategic Investment Conference, Dr. Lacy Hunt, the executive vice president of Hosington Investment Management and former senior economist for the Dallas Fed, said that quantitative easing has created “significant unintended consequences.”


The Worst Expansion in US History

“What the Fed did was, they said to the world we are undertaking quantitative easing so we can boost the stock market… and the stock market will then produce a wealth effect and invigorate the economy.”

While the Fed has increased its balance sheet by $3.57 trillion since 2008, and the S&P 500 is up 255% since 2009, Hunt says, “this is the worst expansion in US history.”

Source: BCA Research

As just half of Americans own stocks, it’s no wonder the wealth effect hasn’t percolated through the economy.

The Fed’s massive experiment has also created huge distortions in the private sector, which has severe consequences.

Business Leverage at Record Highs

“Quantitative easing has created a lot of negatives, one of the most glaring is this liquidity which has fueled record leverage of the business balance sheet.”

Total business debt is now up 71% since 2008—twice the long-term growth rate. Worse yet, Hunt says much of this debt has been used unproductively: “Quantitative easing encouraged a shift from real investment to financial investment. The Fed’s backing your play, engage in financial engineering… buyback shares, raise dividends. The business managers think they can reverse [these actions].’’

Although total business debt is at a record high, real investment—expenditures on property, plant, and equipment—is falling.

Hunt goes on to say, “It’s the investment, the real investment which grows the economy. The Fed has created very significant unintended consequences, which have undermined the US [economy’s] ability to grow and lift the standard of living.”

An Ominous Sign for the US Economy

Speaking in an exclusive interview with Mauldin Economics, Hunt also addressed the Federal Reserve’s current monetary tightening cycle: “Whether they [raise rates] is immaterial because already they have engineered a contraction in [credit]… all major categories of bank lending are slowing.”

“Since 1915, of the 18 recessions, all of them, bar one, were preceded by monetary tightening… the Fed is on very thin ice.”

Where Do Bond Yields Go from Here?

For Dr. Lacy Hunt’s thoughts on the future of the US economy, where bond yields are headed, the Fed’s next move, and more—watch the full interview below.

Download a Bundle of Exclusive Content from the Sold-Out 2017 Strategic Investment Conference

Get access to exclusive interviews with John Mauldin, Neil Howe and Pippa Malmgren from SIC, an ebook from renowned geopolitical expert George Friedman and bonus SIC 2017 content…

Claim your SIC 2017 bundle now!

John Mauldin Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules