The Fed's Money Trap

  The Federal Reserve, and therefore the economy, is caught on the horns of a dilemma of our own making. ZIRP (zero interest rate policy) and the aggressive pumping of money (upwards of $85 billion a month) into the financial system have tripled our money supply. If it weren't for nearly stagnant money velocity (MZ), we would be seeing inflation / CPI in the 20% range or more.  This disruption of the money supply has sent confusing signals to both markets and Main Street, distorting prices and misallocating resources as the newly created dollars search for opportunities to earn a return. Housing is perhaps the canary in the coal mine telling us that things are not going well and danger is close by. Even with 3% 30 year mortgages and no money down, we have  to go back to 1997 to see such such low levels of home ownership in America. New housing starts, while showing some improvement, are still quite weak perhaps even stalling out.  We now see a return to...(Read Full Article)