zerohedge.com / By George Melloan / February 7, 2013, 19:07
From an op-ed by George Melloan, posted in the WSJ, and can be read in full here
The Fed’s Asset-Inflation Machine
Asset inflation often produces something called “wealth illusion,” the belief that pricier asset holdings necessarily make one permanently richer. Illusions are dangerous. Eventually, painful reality intervenes.
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President Obama and Mr. Bernanke worsened the effects of the 2008 crash by adopting the same Keynesian antirecession measures—fiscal and monetary “stimulus”—that had failed before, most dramatically in the 1970s. Stanford economist and former Treasury official John Taylor recently argued persuasively on these pages that “stimulus” measures had retarded rather than speeded recovery.
Mr. Bernanke will have great difficulty letting go of the near-zero interest rate policy without severe consequences for both the Fed and the economy. The Fed’s own economists recently warned that the Fed itself could lose as much as $100 billion on its vast portfolio when bond prices finally fall from their artificially elevated levels. Meanwhile, higher interest rates will cause the cost of financing government debt to skyrocket.
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