“Son Kills Parents and then Complains of Being Orphaned”

by Don Boudreaux on November 15, 2010

in Inflation, Monetary Policy, Reality Is Not Optional

Here’s a letter to the Los Angeles Times:

You report that “The markets also have been throwing the Fed another curve: While the goal of QE is to keep longer-term interest rates depressed, market yields on Treasury, corporate and municipal bonds jumped at the end of last week even as the Fed’s Treasury-purchase program ramped up” (“Fed’s bond-buying plan faces new assault by critics,” Nov. 15).

Even as“?!

This “curve” is no coincidental occurrence.  It’s a direct and predictable consequence of the Fed’s diarrhea of dollar creation.  That agency’s goal might well be “to keep longer-term interest rates depressed,” but economies reflect realities and not mere intentions.  And the reality is that market participants understand that this incontinent increase in the supply of dollars will spark higher inflation.  Creditors thus insist on higher long-term interest rates to compensate them for the dollar’s falling value.

If this jump in bond yields is indeed a “curve,” it’s one thrown, not by markets, but by the Fed itself – and it’s thrown not so much at the Fed, but at the heart of the economy.

Sincerely,
Donald J. Boudreaux

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