Judy Shelton In The WSJ: The Fed’s Woody Allen Policy
But what if the Fed’s efforts to stoke a recovery are merely creating asset bubbles in equities and elsewhere? What if government guarantees—explicit and implicit—are encouraging high-risk investment behavior rather than restoring conditions for normal market returns? What if excess dollars produced here are being channeled by speculators into foreign stock and bond markets as part of a currency play?
In the last eight months, the Dow Jones Industrial Average has risen from its March 6 low of 6470 to over 10290 today, a gain of roughly 59%. The Nasdaq Composite Index and the S&P 500 Index have likewise increased about 71% and 65%, respectively, since early March. Are we looking at the restoration of legitimate values or the emergence of disastrous new asset price bubbles?
The answer would seem to lie in whether the Fed’s money machine is fueling an illusory recovery that is only manifested in financial markets as opposed to the general economy. The FOMC’s own report acknowledges that economic activity remains weak, household spending is constrained, and businesses are still cutting back on fixed investment and staffing.
– Judy Shelton, “The Fed’s Woody Allen Policy”, The Wall Street Journal, November 12, A25