This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

An Argument for Unconventional Monetary Policy

NEW YORK ( TheStreet) -- There has been much discussion over the validity of unconventional monetary policy around the world. Many believe it has limited effects and will ultimately lead to a hyper-inflationary spiral.

Although there are truths to both sides of the argument, in today's financial system, stimulus can be beneficial. Stimulus has allowed corporations to boost earnings even in the face of lower revenues.

With regards to inflation, the Federal Reserve balance sheet is as large as ever, and M1 money stock continues to move higher. Interestingly enough, inflation expectations remain suppressed and global growth continues to be tepid. The reasoning is that sentiment drives these concepts rather than some hardwired economic truth.

The last aspect that will be discussed is investor sentiment. Unconventional monetary policy creates a blanket over financial markets that boosts sentiment and is an eventual self-fulfilling prophecy. If a majority of market participants believe the market will go up, eventually it will.

The first premise of the argument is that record-low interest rates have given corporations room to expand credit at cheaper rates and subsequently boost earnings. After the financial crisis, most corporations decreased their labor forces and reined in investment. They were essentially in survival mode. When the dust cleared and the Federal Reserve enacted policy to drive down long-term rates, a sense of relief ensued.

Record-low interest rates allowed companies to take out large sums of credit at a much cheaper price than at any time before. Revenues were still suppressed due to weak consumer demand, but with credit, companies were able to continue operating in an efficient manner.

A reason that financial markets have been able to reach record levels, even as economic data remain volatile, is due to such corporate earnings. Interest payments have considerably dropped and earnings per share for the aggregate market have increased.

There is always the fear that easing policy at the lengths we have will eventually come back to bite us. The issue of inflation is as much tied to expectations as it is increased money supply.

Currently our money supply and central bank balance sheet are at historic highs. However, a weaker global growth picture has led to a selloff in inflation hedges, gold and Treasury Inflation Protected Securities.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $93.21 -0.44%
FB $117.80 -0.22%
GOOG $701.26 0.80%
TSLA $211.34 -5.00%
YHOO $36.94 2.61%


Chart of I:DJI
DOW 17,660.71 +9.45 0.05%
S&P 500 2,050.63 -0.49 -0.02%
NASDAQ 4,717.0940 -8.5450 -0.18%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs