What Effect of Near Zero Interest Rates Until 2014 Have On The Economy?

Peter Schiff (2012.02.03 ) Investing

With its announcement last week that it will keep interest rates near zero until at least late 2014, the Federal Reserve has put another large crack into the foundations underlying the US dollar. In a misguided attempt to provide clarity and transparency, Ben Bernanke has instead laid out a simple road map for economists and investors to follow. The signposts are easily understood: the Fed will stop at nothing in pursuing its goals of creating phantom GDP growth, holding down unemployment, propping up stock and housing prices, and monetizing government debt. To do so, it will continue to pursue a policy of negative interest rates, while ignoring the collateral damage of unsustainable debt, virulent inflation, misallocated resources and credit, suffering yield-dependent retirees, and a devalued U.S. currency. 
Not surprisingly, precious metals and foreign currencies rallied strongly on the news – with gold up more than 4.3% and the Dollar Index down nearly 1.6% in the days following the announcement. The Dollar Index is now down more than 3.5% from its highs in mid-January.
In coming to the momentous decision to extend the Fed’s prior low-rate promises by another 18 months, Bernanke and his cohorts relied on a somber view of the economy that is at odds with the sunnier view presented the night before by President Obama in his State of the Union address. To justify holding rates so low for so long, the Fed is choosing to ignore the fact that CPI inflation is currently running north of 3%. Instead, it has conveniently chosen to look at a hand-picked alternative measure, the chain-weighted core PCE, which comes in just a shade below the Fed’s arbitrary 2% target. How convenient.
After some changes in key membership at the Federal Reserve’s policy-setting Open Markets Committee, in which a few long-time hawks were put out to pasture, the Fed has now established itself at the extreme dovish end of the policy spectrum. Among other central banks around the world, it may now be outflanked only by some very profligate ones in South America and sub-Saharan Africa. Unfortunately, the FOMC has its hands on the wheel of the world’s reserve currency, and therefore its decisions may lead the planet into financial chaos as long as other nations are content to follow the Fed farther and farther into a swamp of liquidity. To paraphrase Pete Seeger’s protest of the escalation of the war in Vietnam, “we are waist deep in the Big Muddy and the damn fool yells ‘press on.’”

The agony of Japan Inc.

 

Companies like Apple, IBM and Microsoft once stood in the shadow of much larger and more powerful Japanese electronics giants. Those days are long gone -- and, lately, it looks like they may never come back.

By Kevin Kelleher, contributor

"This country is in a war and some people understand it and some people are siding with the enemy."
FORTUNE -- Believe it or not, someone once wrote those paranoid words about Japanese corporations. It was only two decades ago, when people fretted – wrongly, if profitably – about the awful and certain specter of Japan eating America's economic lunch.
I found that paranoid quote in Rising Sun, the forgettably terrible 1992 airport novel about American cops foiling Japan Inc. with videotapes (consumer goods almost certainly manufactured by Japan Inc.). But it wasn't only Michael Crichton profiting from such cultural hypochondria. Nonfiction bestsellers in that bygone era included Karel van Wolferen's Enigma of Japanese Power, Clyde Prestowitz's Trading Places, and Pat Choate's Agents of Influence.
They were all bad books, and the only reason to remember them now is to measure the high watermark of innovative power that Japan's electronic giants once touched, albeit briefly, before falling again. And falling hard. There was a time when companies like Apple (AAPL), IBM (IBM) and Microsoft (MSFT) stood in the shadow of Japanese electronic giants like Sony (SNE), Panasonic (PC), Sharp (SHCAY) and Nintendo (NTDOY). But no more.

In the whirlwind of its IPO fallout, there has been a sort of glee in watching the company stumble. What's driving the Facebook-schadenfreude and what can the social network do about it?

FORTUNE – We all love a rags-to-riches story, but a relative-comfort-to-exorbitant wealth story is less enticing. That has been Facebook's story, which, until this point, has been all about its founder and CEO Mark Zuckerberg: A smart kid with a good idea becomes a billionaire. What's more, he becomes a billionaire, we have all realized, off of us (or at least our data).
And like cable companies, Facebook (FB) has competitors, but none that match its reach, which leaves users sometimes feeling a sense of powerlessness. Perhaps that is why, in the whirlwind of its anticlimactic IPO, there has been a sort of glee in watching the company stumble.
The media, including this publication, has covered Facebook's public offering to death. Indeed, over the past two weeks, Fortune.com devoted its homepage real estate to a whopping 24 stories on the company's coming of age.
Facebook's recent fumbles have drawn so much attention partly because of the sheer size of its IPO, but also because of the enormity of its brand. The social network is recognizable in a way that many companies would kill for: everyone knows what it is, even people who don't use it. Some of the people who use it, especially teenagers and pre-teens, see it as critical to their quality of life.