Bond king Bill Gross recently said, “Prosperity and overconsumption was driven by asset inflation that in turn was leverage and interest rate correlated.” Although Bill says “was driven by,” current US Federal Reserve and Bank of Japan policy continues to create asset inflation (e.g., stock market returns since March 2009, huge debt supply, 0% interest rates, etc.). (Hat Tip: Hedgeye)
So, the question remains: when will the old economic story end so we can finally build an economy based on organic economic activity?
“Wall Street banks control the Federal Reserve system, it’s their personal piggy bank. They’ve already done so much damage, yet have more control than ever. Warning: That’s a set-up. They will eventually destroy capitalism, democracy, and the dollar’s global reserve-currency status. They will self-destruct before 2035 … maybe as early as 2012 … most likely by 2020.”
However, destroying the Fed is not necessarily as valuable as simply forcing the Fed to do their government mandated job. (See “Has the Federal Reserve Failed?“)
Contrarian talking heads love to speak in extremes. It makes for entertaining and engaging television. But never forget: governments exist to maintain order in a world biased toward chaos. Therefore, most likely we will always have some governing body overseeing the economy. If the Federal Reserve implodes, there will be another as fast as we had a Department of Homeland Security after 9/11.
So, don’t get too caught up in the sexy stories about bringing down the big bad Fed. Instead, focus more on the reality that the old economic story continues and you need to protect your portfolio in the real world.