Doug French

Cheap and plentiful money and credit have made investing impossible and speculation de rigueur for those not wishing to wait out the storm with the barbarous relic. The father of value investing, Benjamin Graham, distinguished between the two:

Investment is most successful when it is most businesslike. An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative.

Government's debauchery of money to further its aims is as old as time. But Ben Bernanke's central bank has turned more tricks than the Bunny Ranch, and the money supply has finally responded to his goosing.

Reporting on April Fools' Day, the Wall Street Journal's Matt Wirz and Serena Ng broke the news:

Subprime and other residential mortgage bonds that helped trigger the financial crisis are back in vogue with long-term investors, in the latest sign that American credit markets are healing after the worst downturn in a generation.

The price of this paper, once considered so toxic, has doubled since the end of the financial world was feared a couple years ago.

When a local banker told me last week, "we're lending money again," I replied, "lending officers are paid to say their bank is lending, even when they can't get a deal approved."

"No, we're really lending. In fact, our builder finance group is out looking for deals."

These anecdotes should give Keynesians comfort that bankers did not develop long memories in the wake of the financial meltdown.

So the commercial and shadow banking systems are gearing up and the money is flowing. But where? Bill Bonner and Addison Wiggin wrote in Financial Reckoning Day Fallout,

The problem with all money is that it is as fickle and unreliable as a bad girlfriend. One minute she goes along with the flow. The next minute she turns silly and bubbly. And then, she gives you the cold shoulder.

Doug French

Doug French is is president of the Mises Institute and author of Early Speculative Bubbles & Increases in the Money Supply and Walk Away: The Rise and Fall of the Home-Ownership Myth

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