The Fed Is Trapped in a Catch-22- Nomi Prins

KW: Copy of the latest Prins article

Catch 22

Last week, the Fed cut rates by another 25 basis points which brings the total rate cuts for 2019 to 75 basis points. But here’s the problem: If the Fed keeps rates this low, it means more financial asset bubbles can inflate. But if the Fed doesn’t lower rates, the corporate sector is most at risk. Corporate debt is a ticking time bomb.

Corporate debt is out of control, fueled as it’s been by all the Fed’s cheap “dark money.” U.S. firms hold $15.5 trillion in debt that’s gone into buybacks, not investment. If rates were to rise, that debt could default and lead to a repeat of 2008.

It’s a dark money Catch-22 of the Fed’s own making, built up over the past decade. Now it’s trapped. Damned if it does, damned if it doesn’t.

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