QE4 results in lower expected inflation maybe..

Lets say hypothetically the same people that own most of the US treasuries also have a controlling stake in our banks (It shouldn’t be far fetched).  While these investors may not control nominal interest rate in the manner that the Federal Reserve does, they would control the real interest rate by tightening lending standards and limiting the money supply.

As a result, each time the federal reserve lowers the rates or gobles up assets in an attempt to spur inflation, banks simply react by lending less to counter the effect.  In essance, the federal reserve continues to force banks/investors to tighten their lending standards so they can guarantee themselves a decent return on treasuries and other fixed investments.

Conversely, imagine what banks and investors will have to do to insure a profit if the fed enters an era of selling assets and raising rates.

 

 WOW! It’s WebStory!
Advertisements
Post a comment or leave a trackback: Trackback URL.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: