The Healing Economy?

Is the economy on the mend?

The economy may be healing, but is has needed extraordinary intervention. One thing David Stockman wrote in Sunday’s New York Times that was clearly wrong was his assertion that in 2008 money-market funds were not imploding. In fact, Lehman’s bankruptcy caused a very large fund to “break the buck,” and this triggered a run on all prime money-market funds, causing a liquidity crisis among almost every major US corporations and a credit crunch leading to hundreds of thousands of layoffs.

If the economy had been a patient, it would have had to be put in “intensive care.” The Fed initiated all kinds of extraordinary interventions to keep it alive, and prevented a major debt-deflation. As confidence gradually returned, the patient was transferred from the ICU to normal inpatient care. The breathing tube and IVs were removed, but it still needed more tests.

Now we’ve moved from the hospital to outpatient care. The economy is still on powerful medications—mainly the ultra-low Fed Funds rate and bond purchases by the Fed—that distort incentives. But in reality, we’re taking far lower doses than we used to.

The economy may be improving, but it’s not well. Getting off the Fed’s meds at the right time is key to getting things back to normal.

Douglas R. Tengdin, CFA

Chief Investment Officer

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By | 2013-04-04T09:40:21+00:00 April 4th, 2013|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. –
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