The dirty little secret of finance is that everyone is making it up on the fly. Economics is a social science focused on human behaviors. People have a habit of behaving in ways they "shouldn't." Other scientific pursuits have tangible answers where economics has a collection of best guesses. The speed of light is a constant but the velocity of money is subject to the collective whims irrational masses.
Related: Bond Rate Rally Crushes Equities
For the better part of six years the FOMC has been doing its best to give away money. On an institutional, level money is essentially free. The notion driving this Federal Reserve largesse was the idea that free money would get spent, thus stimulating the economy. There should be inflation right now. Instead the economy is listless, almost sedated.
If market participants seem on edge it's only because everything they once believed to be true is either being shown to be utterly false or the delay between cause and effect is so long that the theory is pointless.
Keep all of this in mind as you watch the attached clip with Peter Schiff, president of Euro Pacific Capital and author of The Real Crash, Yahoo! Finance senior columnist Mike Santoli, and the Breakout crew. The heat is real but not personal. Traders and economists are being forced to rethink models, investments and philosophies in real time. If there is inflation it's not measurable. If unemployment is falling it's all but imperceptible pace.
The headlines about the Fed's subtle change in policy is bunk. Ben Bernanke's position has never changed. He will stimulate until inflation as measured by the Fed gets too heated up or unemployment falls to levels obviating the need for artificially low rates.
Bernanke is as unchanging as the smile on the Mona Lisa. His stance is constant. It's our collective reaction to the work and our economic models that need changing.
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