If the Fed Were Publicly Traded, Wall Street Would Savage Its Stock
If the Fed were a publicly traded company, Wall Street would trash its stock based on the credibility of management, the failure of its policies, the loss of confidence of major constituencies and a weak -- if not insolvent -- balance sheet.
Reason 1: Some of the FOMC Members Don't Get ItFrom the minutes of the July 30-31 meeting of the Federal Open Market Committee, we find the following excerpt: "...several participants expressed confidence that the housing recovery would be resilient in the face of the higher rates...."
Thirty-year fixed mortgage rates (Freddie Mac) rose from 3.35% in May, before the Fed's tapering announcement, to 4.58% on Aug. 22. That's a 36.7% increase. The median price of a new home in July was $257,200, up $7,500, or 3%, from $249,700 in June. (The Fed, by the way, doesn't believe that there is any inflation in today's economy.)
If the typical U.S. family buying the median-priced home had purchased in May at $250,000 with a 20% down payment with a Freddie Mac 30-year fixed-rate loan, the principal and interest payment would have been $881 a month. By August, the principal and interest payment on a similar home costing the same amount with the same down payment would be $1,023 a month.
Thus, it isn't any wonder that new home sales (based on contracts signed) plunged by 13.4% between June and July. One has to wonder about the economic competence of those "several participants."
Reason 2: QE Has Flopped as a Growth StimulatorA study by two Fed economists (Curdia and Ferrero), published by the Federal Reserve Bank of San Francisco Aug. 12, concludes that "asset-purchased programs,
The authors found that in the QE2 program, the asset purchases alone added only .04 percentage points to GDP. That's about $6.4 billion -- not much considering that QE3 purchases are currently $85 billion each month.