Fed Up with the Fed

Is anyone else fed up with the Federal Reserve? To paraphrase Irving Fisher’s famous quote about the stock market just before it crashed in 1929, we’ve reached a permanently high plateau of Fed mismanagement, Fed worship and Fed failure.

The only legitimate role for a central bank is to provide emergency liquidity in financial panics to creditworthy borrowers. Once the bad debt (credit extended to failed enterprises and uncreditworthy borrowers) is written off, the system resets as asset valuations adjust to reality–how ever unpleasant that might be for the credulous participants who believed the ever-present permanently high plateau shuck and jive.

Just to state the obvious: Fed policies are not just insane, they’re destructive:

— Bringing future sales/demand forward by lowering interest rates to zero just digs a gigantic hole in future sales/demand. Funny thing, the future eventually becomes the present, and instead of a brief recession of low demand we get an extended recession of weak demand and over-indebted households and enterprises.

— Enabling massive systemic speculation by those closest to the Fed’s money spigot is insane and destructive, as capital is no longer allocated on productive returns and risk but on the speculative gains to be reaped with the Fed’s free money for financiers

— Buying assets to artificially prop up markets completely distorts the markets’ ability to price assets based on real returns and real risk.

Manipulating interest rates creates a hall of mirrors economy in which nobody can possibly discover the real price and risk of borrowing money. What would mortgage rates be without the Fed and the federal housing agencies (Freddie and Fannie Mac and the FHA) pumping trillions of dollars of federally backed mortgages into the housing market?

Nobody knows, because the mortgage market in America has been effectively taken over by the central bank and state.

The Fed’s entire policy boils down to obscuring the real price of assets, credit and risk with a tsunami of debt. The Fed’s “solution” to the economy’s structural ills is: don’t worry about risk, valuation or costs–just borrow more money for whatever you want: new houses, vehicles, stock buy-backs, Brazilian bonds, worthless college degrees, it doesn’t matter: there’s plenty of credit for everything.

The only thing that matters is your proximity to the Fed money spigot. If you’re a poor student, you get a high-cost student loan from the Fed’s flood of credit. If you’re a corporation or fiancier, well, the sky’s the limit: how many billions do you want to borrow or skim for stock buybacks or speculative carry trades?

The Fed’s control of the machinery of obfuscating price and risk has made us all members of the Keynesian Cargo Cult. Now we all dance around the Fed’s idols, beseeching the Fed the save us from our financial sins. We study the tea leaves of the Fed’s announcements, and hold our breath lest the worst happen–gasp–the Fed might push interest rates up a quarter of a percent.

This is of course totally insane.

Destroying our ability to discover the real cost of assets, credit and risk has not just crippled the markets–it’s crippled the entire economy. Wake up, America, and stop worshipping the false gods of the Fed. The sooner we smash the Fed’s idols and strip away their power to enrich the few at the expense of the many, the better off we’ll be.

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  • Your fine chart Mr. Smith explains this action by George Soros.

    May 17, 2016 Soros doubles bet against the S&P, goes for gold

    Billionaire investor George Soros, who made a fortune betting against the British pound in 1992, on Monday disclosed a big bet on gold during the first quarter and doubled the wager against the S&P 500, according to a regulatory filing. The 85-year-old’s fund disclosed a 2.1-million-share “put” option in an exchange-traded fund that tracks the S&P stock index.


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  • Mr Boompi

    I think we are deluded if we believe the Fed’s role is to provide emergency liquidity in financial panics to creditworthy borrowers, legitimate or not. They are a private bank owned by a secretive group. Their role is to protect the interests of this group and the oligarchs who depend on them, and that’s about it. They caused the very panic that was used as an excuse to ram through the Federal Reserve Act in the first place. Rothschild was correct when he said as long as he could create money and regulate its value, he didn’t care who made the laws. Telling us they care about inflation or employment is deceit of the highest nature.

    • “Who controls the issuance of money controls the government!” Nathan Meyer Rothschild

      A surprisingly small number of corporations control massive global market shares. How many of the brands below do you use?

      Which Corporations Control the World?


    • Ralph Musgrave

      I agree that the Fed is too close to the “Oligarchs”: there are far too many Jamie Dimons and Lloyd Bankfiends on Fed committees. In contrast, the Bank of England’s Monetary Policy Committee, for example, has just one private sector banker (from Goldan Sachs). The rest are academics or BoE officials.

      On the other hand who technically owns a central bank is irrelevant. The BoE is actually owned by the UK Treasury, which you could argue is not desirable given that the BoE is supposed to be independent of the Treasury.

      The IMPORTANT POINT is: what are the rules that govern a central bank.

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