The Federal Reserve’s decision to buy Treasuries and keep interest rates low will support “risk assets” without bringing down unemployment, said Anthony Crescenzi at Pacific Investment Management Co.
“Low volatility tends to be good for the interest-rate climate,” said Crescenzi, who is based in Newport Beach, California at Pimco, manager of the world’s biggest bond fund. “It does push investors out the risk spectrum generally. That tends to be good for risk assets.”
Let’s parse this:
1. Official policy favors moneyed classes, as in asset holders, over the population generally. If you need a job and want to work, too bad, the banks went to the head of the line for government rescue money.
2. But a lotta asset holders aren’t too happy either. The Fed’s continuing rescue operations means they get crappy yields.
3. So Pimco says at least some are gonna chase yield. That means taking risk. So prices of those assets go up.
4. But wait! Remember 1. Unemployment sucks. Unless unemployment gets less sucky, there won’t be much of any growth, so those risky assets will probably not deliver. And if we go into deflation, the smart place to be is not risky stuff, but cash and safe bonds.
We tried a variant of this program starting in 2002 with a more solid economy and we are still trying to recover from how that movie ended. Einstein defined insanity as doing the same thing over and over again and expecting different results. And since the financial sector profited so handsomely from this exercise the last time around, they have every reason to encourage this insanity.