Pimco's Mohammed El-Erian provides a nice summary of the damage caused by just the zero interest rate policy pursued by the Fed.
What this continued Fed activism will do is to continue altering the functioning of markets, contaminate price discovery and distort capital allocation.
Already, the viability of several segments – from money markets to insurance and from pension provision to suppliers of daily market liquidity, all of whom provide financial services to companies and individuals – has been undermined.
The Fed has also conditioned many market participants to believe in a policy put for both equities and bonds. And other government agencies are relieved to have the policy spotlight remain away from their damaging inactivity.Variations of this summary can be used to describe the impact of bailouts, stress tests, regulatory forbearance or the host of other policies implemented to buy time while praying for a miracle.
The irony of course is that there was no need for any of these policies.
Regular readers know that solution of combining the Swedish model with transparency has been known to end a bank solvency led financial crisis since the Great Depression.