Jan 192011
Bill Fleckenstein reflects on the madness that represents US economic policy. In a podcast Mr. Fleckenstein expects the dollar to be the fiat currency that wins the race to the bottom. The podcast is available at Zerohedge where Fleckensteins main points are summarized:
- The culture of the Fed reinforces a belief in its infallibility. That blinds it to the fact that its interventions cause market players to adopt irrational behavior leading to misallocations of capital that eventually need to be corrected by the system (e.g., busts).
- Correlation between asset classes is the highest it’s been in 60 years. This is a result of the Fed flooding the market with liquidity. It makes it very hard for investors to be anything besides speculators.
- The SEC has been asleep at the switch for the past 15 years, leaving the system vulnerable to exploitation – if which HFT programs are just the latest example.
- A funding crisis looks inevitable: at some point the bond market or the currency market will revolt, resulting in a weak dollar and increasing bond rates – despite whatever the Fed wants
- It’s perverse for the US to be rewarded for using a printing press indiscriminately without making any fiscal changes, while Europe is painfully adopting austerity and yet gets penalized.
