Fed Punishing the Prudent

"Neither a borrower nor a lender be," Polonius advises his son Laertes in Act I of Shakespeare's  Hamlet.  "For loan oft loses both itself and friend, / And borrowing dulls the edge of husbandry." Polonius may be Shakespeare's idea of an old fool, but his advice still rings true.  Most human beings, I believe, have an innate fear of excessive borrowing and a corresponding reluctance to loan money in the absence of solid collateral.  Or they did, before the moral hazard attached to reckless fiscal behavior was removed by governments eager to spur growth at all cost.  Recent actions by the Federal Reserve, in particular, have set this ancient wisdom on its head. Over the past five and a half years under Ben Bernanke, the Fed has pursued an extreme policy designed to bail out improvident borrowers at the expense of responsible long-term savers.  By lowering interest rates to inflation-adjusted negative rates of return, the Fed has attempted to recapitalize...(Read Full Article)

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