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CNBC's Kernen: Fed Now Doing More Harm Than Good

By    |   Friday, 13 May 2011 02:39 PM

Federal Reserve officials harbor noble intentions behind loose monetary policies, yet the downsides to low interest rates coupled with quantitative easing are starting to outweigh the positives, says CNBC "Squawk Box" anchor Joe Kernen.

The Federal Reserve is scheduled to end a $600 billion bond buyback in June. The buyback, known as quantitative easing, is designed to pump banks full of money so they'll lend and also invest in the stock market.

Ideally, higher stock prices should prompt companies to sell fresh stocks and use the raised capital in job-creating new projects, although inflation often results with quantitative easing.

"While I can understand and sympathize with the chairman and with the Fed, I think there comes a time where the Fed has to say 'We've done everything we could,'" said Kernen, who is co-author, along with his daughter Blake, of "Your Teacher Said What?!: Defending Our Kids from the Liberal Assault on Capitalism." 

"I'd rather have them jumpstart the economy than be actually providing the fuel or the gasoline for the economy," Kernen tells Newsmax.TV.

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Both Federal Reserve officials and the White House want to see the unemployment rate fall. Everybody wants that, so the Fed, naturally, doesn't want to look like it's doing nothing, hence why quantitative easing is still under way on top of rock-bottom interest rates.

"I could see after with interest rates at zero where they had to come up with some innovative techniques to try to jump-start the economy, but I think that the benefits have finally started to be outweighed by the negatives, whether it's the dollar or commodity prices or whatever you want to look at."

With all that money flowing into the banking sector via quantitative easing — known by its abbreviation as QE2 — the dollar continues to weaken, which has helped fuel demand for commodities, including oil.

Unforeseen political turmoil across the globe isn't helping things either.

"I don't think anyone expected, whatever you want to call it, the springtime that is arising in the Middle East and all of the negative consequences in terms of the uncertainly of Libyan oil supplies or, God forbid, something should heat up in Saudi Arabia," he said.

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"You could probably find fault with some of the administration's foreign policy initiatives but just in terms of monetary policy their body language might indicate to the Fed that they're behind them with QE2. But you've got to connect a lot of dots to get from Obama to $4 gas."

Speaking of commodities, silver and gold have skyrocketed over the past few years, silver especially this year.

For Kernen, precious metals have moved on fundamental reasons, but also due to the damage to fiat currencies that central banks from around the world have inflicted through loose monetary policies and other stimulus measures.

That could mean a bubble is forming.

"In the past when Warren Buffett — Berkshire Hathaway — has trailed the overall market, he did it during a financial stock bubble and he did it during the Internet stock bubble. He's trailing the S&P again because he hasn't chased the commodity train. The last two times he underperformed, he didn't jump in when everyone else was, and it served him well," Kernen says.

"Perhaps that it's going to happen again. I mean fiat currency, with the printing we have seen around the world by the central banks, you can see why momentum traders in investment funds and people like George Soros or John Paulson, you can see why they would find hard assets attractive. But when you see silver go from $18 to $50 in the course of 12 months that's when you start to ask yourself is there more involved here than just fundamentals or even the search for hard money."

Get 'Your Teacher Said What?!' at a Great Price from Amazon – Click Here Now.
 

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Federal Reserve officials harbor noble intentions behind loose monetary policies, yet the downsides to low interest rates coupled with quantitative easing are starting to outweigh the positives, says CNBC Squawk Box anchor Joe Kernen. The Federal Reserve is scheduled to...
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2011-39-13
Friday, 13 May 2011 02:39 PM
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