Fed's Bullard: 'When it does blow up it will be too late'

Posted by Adam Sharp - Wednesday, June 22nd, 2011

There are at least a few sane(r) folks at the Federal Reserve. Like James Bullard, president of the St. Louis Fed.

In a recent interview, Bullard offered a stark warning on the very real risks associated with America's current financial trajectory.

Lawmakers and investors shouldn’t take comfort in low U.S. borrowing costs because markets are often “complacent” about the risk from excessive deficit spending, said James Bullard, president of the Federal Reserve Bank of St. Louis.

"When it does blow up it will be too late," Bullard said in an interview last month in New York. "When markets lose confidence in the U.S. and say that they don’t trust us any more, rates will skyrocket and the crisis will be upon you."

He's right, of course. Interest rates can't stay low forever. If (or when) the world does start to lose faith in America's ability to reign in spending and cut debt, things could get very interesting. Quickly.

Mr. Bullard points to Greece as an example. Just a year and a half ago, Greek 10-year bonds yielded 5%. Today it's close to 17%. Trying to raise more debt at those levels is ludicrous. Like trying to run a national economy on a high-interest credit card. Unsustainable, impossible.

Most of his colleagues, meanwhile, aren't that concerned. And unfortunately, they're the ones who call the shots.

Bill Dudley, ex-Goldman exec and current head of the powerful NY Fed bank, continually reassures that the recovery is "self-sustaining". Might need a little top-off every now and then, of course...

But according to Dudley, Yellen, and of course, Bernanke, things are generally looking up. You just have to ignore an awful jobs picture and rising prices. And have an overall unrealistic, overly-optimistic view of things.

Personally, I don't see how you can call anything about this economy self-sustaining. More like self-destructive. They're not just "priming the pump" at this point. They're pouring gasoline all over the damn place.

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