[quote=briansd1][quote=SK in CV]
4. “Free” money from the Fed is causing speculation.
It’s probably more appropriate to say that cheap money from the fed is facilitating the speculation. Low interest rates do not make anyone speculate.[/quote]
I agree. Nobody nor low interest rates can make anyone do anything.
It’s a matter of incentives and policies that encourage and enable certain behaviors.[/quote]
Playing devil’s advocate here…
I’d say that artificially low rates do indeed cause people to “speculate” and move further out on the risk curve. Many institutions (pension funds, hedge funds, private equity, etc.) have certain performance goals, and some NEED to reach certain yields. If the Fed keeps rates artificially low (as I’d argue they’ve been doing this entire decade, if not longer), it forces these large, institutional buyers/traders to get into markets or types of investments they’d normally not be in, or at least not without requiring a much higher yield.
IMHO, the whole “growth” story (really, asset price increases) that’s occurred after the credit bubble began imploding, is almost entirely due to central bank and govt interference. I believe asset prices are bound to correct again if the Fed/govt ever reduce their presence in the market. As a matter of fact, if the Euro takes a hit, I think we’re going to see some major dislocations because everyone and their mothers are short the dollar/long assets and other currencies.
