The Fed-Induced Stock Market Bubble Continues
Quantitative easing programs have not worked either, unless you like bubbles that always pop. Bubbles in Comex gold and Nymex crude oil have popped. The housing bubble has popped, but is re-inflating. The stock market bubble has yet to pop despite the ValuEngine valuation warning.
Here's how to make Fed policy more Main Street friendly: Raise the federal funds rate to 3% and stop both QE3 and QE4.
Instead of QE3 and QE4 the Federal Reserve should implement a community bank credit facility to set a 30-year fixed rate mortgage at 4% and set a small business line of credit at 6%. Funds would be funneled to regional and community banks with assets between $10 billion and $100 billion. Mortgages should be plain vanilla pass-throughs with the small business loans similarly structured. Securitization of pools of these loans should be structured using the government backed Ginnie Mae program. Instead of the QE's these securities could be purchased by the Federal Reserve.
This strategy would support the U.S. economy from the bottom up rather than from the top down. Providing free money to Wall Street creates bubbles and that has to stop!At the time of publication the author held no positions in any of the stocks mentioned. Follow @Suttmeier This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
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