Yellen's Easy Money Further Inflates The Bubble
NEW YORK (TheStreet) -- Janet Yellen told Congress this week that if she becomes the next chief of the Federal Reserve, the ridiculous policy of a 0% to 0.5% federal funds rate that began in December 2008 will continue for the foreseeable future.
It also appears that quantitative easing will continue without tapering until the next meeting of the Federal Open Market Committee in late-January. As a result, the equity bubble continues to inflate. The Standard & Poor Index, the U.S. benchmark, has gained 26% in 2013, poised for its best year since 1997.
Quantitative easing was supposed to bring down long-term interest rates, not inflate equity bubbles. Look at the yields on the benchmark Treasury 10-year note and the Treasury 30-year bond.
The Federal Reserve began QE3 and QE4 in September and December 2012, and the 10-year yield was at 1.548% at the close in August 2012 with the 30-year bond yield at 2.668%. These yields reached multiyear highs at 3.007% and 3.94% on Sept. 6 and Aug. 22 this year.Our potential future Fed chairwoman testified that interest rates were lower since these QEs began. Well, that's just not true. We know that the Fed-induced bubbles for gold and crude oil popped in September 2011 and July 2008. We know a bubble in equities popped in October 2007. When stocks formed a quick V-shaped bottom in March 2009, I remember at least one headline that read "Dow 5000."
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