Saturday Night at the Fed

All financial markets are rising: stocks, bonds and, especially, commodities. There isn't a bad bet to be seen. Financial advisers are saddling up their best horses and heading out onto the range to try to round up all the investors who've strayed away in recent times. Irascible old coots who lived through the financial crises of ancient times, like 2008, look at the economy's stagnation and mutter under their breaths about things being too good to be true.

The boom in asset values is no accident. For a couple of months, senior Federal Reserve officials have been talking up the idea of quantitative easing: i.e., buying up large amounts of debt in order to pump more cash into the economy. The purpose would be to combat the increasingly evident stagnation in growth and employment levels. Although the Fed hasn't actually made any debt purchases yet, and pretends it won't necessarily act, it has swished and swayed through a fan dance that makes tantalizing promises.

The markets have bought into the message and bounced up from August doldrums. As each day brings more evidence of economic slowdown, the markets rise to new heights in the expectation of yet another Fed rescue. At this point, the markets have the Fed cornered. If it doesn't put out, asset values will sink like stones.

Let's not kid ourselves. The Fed wants to be in this position. The markets have taken the lead and the Fed can claim it's only following. That's hogwash. The Fed is like someone who doesn't want to be bored on a Saturday evening and, all spiffed up and decked out, goes to a singles bar and doesn't return home that night. When you put yourself in certain situations, you want what's going to happen to happen. And the Fed wants the markets to bounce up and force it to go ahead with quantitative easing.

Whether QE does any good is a different question. The Fed may disappoint, by not announcing a big enough buyback. Asset values will then fall. And even if the Fed swings for the fences, there's reason to question whether our economy, already awash with unused liquidity, will grow faster if drenched with more. But, whatever its value, QE is coming.