Tags: Hussman | Fed | Easing | policy

Hussman: Fed’s Next Easing Party May Have No Guests

Tuesday, 10 July 2012 07:43 AM

Economist and find manager John Hussman says quantative easing is effective in supporting stock prices and driving risk-premiums down, but only once they are already elevated. So, if the Fed throws another QE3 party, no one may come.

"When we look around the globe, we find that the impact of QE is rarely much greater than the market decline that preceded it," Hussman writes in a note to investors.

"Not surprisingly, as interest rates are already low, and risk-premiums on more aggressive assets are already remarkably thin, the impact of quantitative easing around the globe continues to show evidence of diminishing returns."

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

To date, notes Hussman, the stock market has largely shrugged off the evidence of oncoming recession, in the confidence that the Federal Reserve will easily prevent that outcome and defend the market from any material losses.

“On that point, it is helpful to remember that the real economic effects of Fed actions in recent years have been limited to short-lived bursts of pent-up demand over a quarter or two,” he says.

Our economic problems run far deeper than what can be healed by more reckless bubble-blowing by the Federal Reserve, says Hussman.

“At the center of global economic turmoil is a mountain of bad debt that was extended on easy terms by weakly regulated lenders with a government safety net,” he says.

“Global leaders have done all they can to protect the lenders at the expense of the public — to make good on the bond contracts of mismanaged financial institutions by breaking the social contracts with their own citizens. The limit of this unprincipled madness is being reached.”

A Reuters poll performed last week revealed that primary dealers, the large financial institutions that deal directly with the Fed, expect a 70 percent chance of the $2.3 trillion QE program being expanded.

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

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Tuesday, 10 July 2012 07:43 AM
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