Are the Rich Addicted to Cheap Money? 

By Shlomo  Maital


  According to Wikipedia,  “in horse racing terminology, a trifecta is a parimutuel bet in which the bettor must predict which horses will finish first, second, and third in exact order.”

  According to The Economist columnist Buttonwood, (“The long goodbye”,   Economist, June 20th 2013)  June 19 saw an unusual “trifecta”:  

   “After the Fed announcement yesterday,

*  the Dow fell 200 points (and European equities are down 2% this morning, June 20),

* the 10-year Treasury bond yield rose to 2.38% and

* gold is down more than 4% to a two-and-a-half-year low. It takes a remarkable piece of news to send all three markets lower. “

  What in the world could drove stocks, bonds AND gold down, all three at the same time? A rare ‘trifecta’?

    It was Ben Bernanke’s announcement that the U.S. Fed would begin a 3-stage policy:   1. tapering (the slowing of asset purchases) which will start later this year if the economic improvement continues;  2. the ending of asset purchases (when unemployment falls to 7%, perhaps next year); and3.  a return to normal monetary policy (which could involve higher rates or an unwinding of QE) which would require unemployment to fall to 6.5%.

   The Economist comments:  “Investors reacted  like trust fund kids being told that daddy is going to cut their monthly allowance. How are they going to cope without the Fed’s largesse?    It is a sad state of affairs that the supposed “masters of the universe” who pride themselves on their Darwinian skills in beating the market should be so dependent on [the Fed].   As has been pointed out before, the rich have done very well out of QE [Quantitative Easing – massive purchases of bonds by the Fed, injecting huge amounts of money and lowering interest rates];  never mind “welfare queens”, these are the welfare kings.”

  Sorry, Masters of the Universe.  You may actually have to pay reasonable interest rates for your borrowing.  There are great institutions that can help you overcome your addiction to cheap money.  And hey, if you like the addiction, you can keep on blasting the Fed for its wrongheaded policies, while you continue to make fortunes from the piles of very very cheap money it creates.  Why leave the party if the music is still playing?