Bondholder Alert: Fed Runs Out Of Gas And Wall Street Takes Over

Thursday, February 14, 2013

The Fed admits its loss of control in Fed’s Stein Sees Risks for Credit Markets:

Federal Reserve Board Governor Jeremy Stein said there isn’t an imminent threat to the wider financial system, but highlighted several markets-including junk bonds, mortgage real-estate investment trusts and commercial banks’ securities holdings-as areas where potentially troubling developments are emerging, possibly as a result of the Fed’s easy-money policies.

“Mr. Stein’s comments are significant because they are among the strongest from a Fed official about risks developing in bond markets in the presence of low interest rates and because he raises the prospect that the Fed might, down the road, need to use tighter credit policies to deal with it.”

Forget 6.5% unemployment and high inflation. The real kill-switch for the Fed’s policies is the law of unintended consequences, and it’s been flipped. And it’s not just those areas that Fed Governor Stein mentions. Wall Street has taken control of the very heart of the Fed’s machine: U.S. Treasury bonds. Want to know what’s going to happen next? Ignore the Fed and watch Wall Street…

This article is published on SeekingAlpha.com


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