The problem with artificial stimulus is 1) it distorts the economy and 2) eventually it wears off. Just as government coffers were artificially stuffed with capital gains tax receipts from the tech boom (especially in CA), how much is the current level of consumption propped up by artificially cheap and available credit, whether it be provided by the Fed, Fannie Mae, public pension funds reaching for yield, the banks plying the carry trade, or Japan's and China's central banks? People have a twisted sense of reality, that they're entitled to perpetually rising home values, eternally low interest rates, and the kindness of strangers. Four years ago the same people thought they were entitled to a perpetually expanding economy and ever-rising tech portfolios. That people haven't learned the simple lesson that there is no free lunch with regards to Fed-engineered low rates, means the bear hasn't done its job… and isn't finished.
~ Kevin Duffy, Bearing Asset Management, April 7, 2004
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