I follow quite a few financial and market analysts who are a lot smarter than I, to build my own personal forecast of where the markets are and where they are headed. While none of them are always right all of the time, some are generally overly pessimistic, others overly optimistic, and still others may flip flop as market influences change.
One of my favorite analysts is John Mauldin, who operates the web site FrontLineThoughts.com. He writes weekly and offers a lot of commentary from other sources as well. His newsletter is free, but can sometimes get fairly technical if you’re not a student of macroeconomics and monetary policy.
He recently posted a note with commentary from a couple other experts analyzing the expected effects of the newly-announced money supply expansion from the Fed. Long story short, don’t expect any economic benefits.
Here’s why: Interest rates are so low, that putting more cash into the system won’t create any demand for investment (that is, new debt), because the interest rate on new debt is just about zero – the same as it is for cash. Why would someone lock up their money in a near-zero-interest rate investment when they can get an almost equivalent return just by holding cash in their pocket? As a result, the prediction is that all the cash the Fed will inject into the system will just sit there as cash and not get loaned out to create growth and jobs.
Have a great week-