From Bust to Burst – by Vasko Kohlmayer | FrontPage Magazine

From Bust to Burst – by Vasko Kohlmayer | FrontPage Magazine: "A Reuters story titled “Wall Street jumps on renewed risk-taking after G20” touches on a startling fact: a recent summit in Scotland of finance ministers and central bankers of the G-20 countries gave impetus to another binge of risk-taking on Wall Street.

How can this be? How can a gathering of the very people who have pledged to rein in Wall Street’s reckless wheeling-dealing inspire the very thing they seek to curb?

To understand it, we need to look at the meeting’s resolution. In their final communique, the participants jointly agreed to continue with stimulus measures in order to support what they see as a fragile recovery:

The recovery is uneven and remains dependent on policy support… To restore the global economy and financial system to health, we agreed to maintain support for the recovery until it is assured.

To coincide with the summit, the International Monetary Fund (IMF) issued a report intended to lend further credence to the central bankers’ strategy. Its premise is contained in this statement: “Premature exit from accommodative monetary and fiscal policies could undermine the nascent rebound.”

As most people know, those “accommodative monetary and fiscal policies” consists primarily of near-zero interest rates and massive cash injections into the economy. What the G-20 meeting did is, in effect, guarantee for the foreseeable future the availability of cheap loans and easy money. This makes for a temptation to engage in unhealthy risk-taking, because it invites Wall Street to take out cheap loans and then invest the borrowed money in assets that promise a higher rate of return. The difference is profit."