Sometimes things don’t go exactly as planned. In the world of economics, this is called an “externality” --where an unintended consequence impacts uninvolved people or economic systems.
Love it or hate it, the Fed’s quantitative easing policies are meant to spur the economy, but many believe the effects are missing their intended goal.
Brian Wesbury, chief economist at First Trust, believes the era of cheap money is not only distorting the market, but it's also not having the desired effect on the economy.
“When I look at Apple (AAPL) in particular, they were just trying to leverage their balance sheet," he says in the attached video. “They can’t find a business right now to buy that’s got as good as profits as they do, so why not buy their own stock?...Is all of this happening because money is easy?”
“Cheap money” isn’t available to everyone, but Wesbury suggests that for corporate America, it's now too easy to access. Enabling large companies to perform balance sheet engineering probably isn’t what Fed chief Ben Bernanke had in mind.
“I believe what’s driving the economy is not the sugar high of money, but actually the real increase in profitability that’s driven by technology,” he states.
In his view, it's advancing technology that's driving productivity and economic growth, thus corporate profits; not the Fed's QE.
The effect of the externalities may have created a situation where if you were a CEO with access to low-rate money, you would borrow as much as you possibly could because it makes great financial sense. The question for Ben Bernanke and the Fed is whether the unintended benefit of providing cheap money so large companies can return wealth to shareholders is worth the costs of subsidizing this “externality.”