Financial Bubbles | - Part 3

David Stockman Does Not ♥ the Fed

David Stockman on Bloomberg on the impact of low interest rates:

To summarize:

You shouldn’t be pegging the money market rate. That is a false function. It doesn’t work in a world that’s drowning in debt. The only reason to peg the interest rate below the market is if you’re trying to encourage businesses and households to borrow. Businesses in America have all the debt they’ll ever need and they’re spending it to buy back their own stock. Households are at peak debt. Ninety percent of households can’t borrow more if they wanted to. So the only thing that zero interest rates do is create a tremendous subsidy, a tremendous incentive for Wall Street to gamble more and more recklessly.

Disability Insurance Trust Fund R.I.P

Veronique de Rugy at the Mercatus Center put together the chart below depicting the dire state of the Social Security Disability Trust Fund, said fund functioning lately as a bridge to social security payments for those who, for whatever reason, aren’t able to work.

It should be interesting to see how this is handled next year when the fund is depleted since, apparently, this fund can’t just borrow money from the general social security trust fund which has a much longer life expectancy.

On a related note, a couple of articles at the New York Times:

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Barro and Schiff on Gold and Inflation

Josh Barro of the New York Times and Peter Schiff of Schiff Gold talk about the yellow metal and how fast consumer prices are rising. The result of the discussion is pretty predictable.

Also see fellow NYT scribe Paul Krugman’s take on the subject here.

For some time now, I’ve thought that it will be instability (and probably much worse) in the global monetary system that eventually pushes the gold price higher, an idea that is not mentioned in any of the above discussion, but which should have been.

One might get the feeling that investors are on to something with their reaction to the recent market slide, namely, that Wall Street has, in recent years, created new and different ways to crash that bypass any regulatory measures put in place since the 2008 crash.

From a Marketwatch story this morning comes the chart below showing equity fund withdrawals that, on Tuesday, reached Lehman levels.

Have a look at three other stories in the previous links post if you doubt the premise:

After the “Great Sedation”

Jim Grant talks about the possibility of sustainable, “free-range” interest rates in the wake of what, increasingly, looks like just a run-of-the-mill, albeit much needed correction for the stock market that, now, should be pretty interesting to watch in the weeks ahead.

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