Wednesday, September 26, 2012

"If something cannot go on forever, it will stop."

This is known as "Stein's Law."

Just something to ponder, as we consider the Fed's enabling of fiscal irresponsibility:

The central bank's recently announced bid to stimulate the economy has also taken the pressure off politicians to deal with the U.S. fiscal cliff, Lindsay argued, which could result in destabilizing tax hikes and spending cuts automatically taking effect early next year.

"The Fed, maybe because it can't do otherwise, has told the Congress: 'We're going to buy your bonds no matter what,'" Lindsey said. "I think that's keeping the pressure off the president, off the Congress."


The effective of QE3 on interest rates may also keep Congress from reining in borrowing.

"If the (Fed) chairman's estimates of the effectiveness of QE3 on interest rates come true, we're going to be down to an average cost of borrowing for the government of 0.6 of a percentage point," Lindsey said. "Why would any Congress not borrow and spend if they could borrow at 60 basis points?"

Buckle up. I'm not sure where this ride ends, but the destination is almost certainly going to be some place we never wanted to go, nor ever imagined we would be.

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