Tag Archives: central banks buying stock

Assessing Damage From Federal Reserve Policy

Download PDF Version

Over the course of its 103 year existence the Federal Reserve has been like a wrecking ball to the wellbeing of the average American. I am not the only economist to say such a thing.  I am the only economist to dispute the notion that the Federal Open Market Committee consists of honest folks who are just misguided in what they are doing. I am calling them dishonest and just getting it out in the open. That gets right to the point and explains why what they do only makes sense to Federal Reserve members and the very few Americans who benefit from their dishonesty.

Using monetary policy to stimulate an economy is like physicists claiming to make a suspended animation machine. Monetary policy is good for increasing and protecting asset values of wealthy Americans.  The problem is not that they are inept. It is that they are dishonest. The Federal Reserve has never done anything other than carry out a political agenda. Pay no mind to testimony, notes from meetings, press releases or testimony before congress. The Federal Reserves only job is elevating asset prices for Americans rich enough to dictate policy to the politicians they support. To save the country, the economy needs to reset. The Federal Reserve prevents that from happening.

Here is the damage, Surely there is more but this is what comes to mind right off the cuff.

Rich people, especially corporate insiders are now lazy. Riding stocks to new highs independently of earnings sure beats innovating and working.  I remember a quote from a certain writer who’s name I have forgotten. “The stock market is food stamps for the rich.” As part of the political asset enhancement initiative, using the wink and nod system, the Federal Reserve lets corporations know, that if they buy back their own stock, their backs are covered. This boosts stock prices. The wealthy truly do benefit financially from the Fed’s asset enhancement initiative. Any good economic numbers come from the spending of the country’s financially elite. Now the health of the economy depends on the level of the stock market. When it crashes, it will take the economy down with it.

Loose money keeps profit margins high and real wages low. The poor have grown in number. The buying power of the lower middle class on down has been severely reduced. Since loose money is so effective in elevating stock prices, corporate insiders get paid a lot more and a lot faster just by riding the price of their stock into the stratosphere. There is no incentive to invest in plant and equipment or try new ideas so job opportunities disappear.

Retired people with savings have been devastated. They are earning just a fraction on their savings compared to what they would receive in a free market setting.

Pensions by most will not be received in their entirety. Some will lose everything they have saved for retirement.

Most importantly, the economy has been destroyed. Market forces are invisible but they are always working. Government intervention always has the result of markets never clearing. There is a system of out with the old and in with the new that is prevented from working. The longer a stimulus plan is in effect, the more inefficiently resources are allocated. Eventually the economy is so inefficient that GDP actually turns negative. Any genuine control the Federal Reserve has over interest rates is lost. Governments of all sizes face huge interest costs as rates start to be determined by the diminishing probability that loans will be repaid.

Appearances are that Central banks plan to continue supporting stock prices. Theoretically they can continue this practice forever. Central banks do not have to earn money in order to invest. All they have to do is buy buy buy. Central banks could actually buy up a controlling interest of all of the world’s largest corporations. No taxes need be levied and no income needs to be earned. As GDP turns negative, that probably won’t happen. Civil order will probably break down and public sentiment is bound to turn against them.

These are just a few of the negative consequences the country faces due to Federal Reserve policy. There will be others that I haven’t even thought of yet. War is almost guaranteed. Only free markets prevent warfare. Free markets are gone so war is largely a given.

It is time an economist stepped up and spoke the truth about Federal Reserve policy. There has never been a chance that the overall economy would benefit. The Federal Open Market Committee members know this. They are liars and thieves. They are carrying out a political agenda. Federal Reserve policy has nothing to do with economics.
The truth is a hard sell. Fantasy Free Economics gains readers one at a time. Major search engines simply do not list blogs which disagree with their political agenda. As long as folks share the link to this blog and others speaking out against the grain, the truth will at least trickle into the public consciousness.
 

 

Fantasy Free Economics recommends the following blogs.

Woodpiler Report Of Two Minds Liberty Blitzkrieg Mises Institute Straight Line Logic Paul Craig Roberts

Stock Market Through October

Leave a reply

bbbDon’t click on these headlines. They are images and just for display. September through Mid-October is the logical time for the market to crash. Will it crash? Everything under the sun is being done to hold it up. Headlines like the ones displayed here are not what they seem. They are designed to draw in short sellers to squeeze so as to help push the market up. The financial news, regardless of where it originates, does not report much genuine news. The financial news is an opinion management service and promotes faith in the financial markets. The only time a lot of bearish articles show up, is when there is a planned boost to equity prices. The more traders who short are expecting a decline, the easier it is for manipulators to drive it higher.

Who is buying stocks? The public is buying only a little and hedge funds are not buying much. Certain central banks are buying heavily. There is no way to tell exactly what the Federal Reserve is doing, but be assured, it is buying through surrogates if not outright. Friends of the Fed are creating artificial demand through the derivatives markets. These are large institutions which get advance information and other benefits from the Federal Reserve for helping make each day green. There are corporate buybacks. This is a type of corporate cannibalism that generates higher earnings and stock prices in the short run but that will eventually break the companies.  The Federal Reserve assures the corporations that they have their backs and that their buys will be profitable.

Think of this as a chain that will be broken. We don’t know what link will fail but when one does, the whole system will collapse.

Central Banks + Friends of the Fed + Corporate Buybacks + Short Sellers Getting Squeezed=Higher Stock Prices

The central banks will not fail. You as a citizen can only invest what you can earn and borrow. Central banks have no worry about taking losses. They get all the free trading money imaginable free, with just a click of the mouse.

Friends of the Fed are organized crime. They will participate as long as the Federal Reserve’s guarantees allow them to make a profit. They are the ones who squeeze short sellers. All of their trades are short term, sometimes just seconds apart. Friends of the Fed are the most likely link in the chain to break. When the Federal Reserve can no longer guarantee them risk free trades, they will disappear into oblivion.

Some corporations are already backing off of buyback programs. Many corporations have losing positions in their own stock already. The eventual losses will be devastating. Corporate officers love buybacks because they allow them to get paid the largest amount of money in the shortest period of time.  If the stock of their companies tank, corporate officers have little concern. Their cake has already been made and all they have already eaten it. Corporate buybacks could evaporate very quickly.

Short sellers amaze me. So many still trade is if they were in a genuine trading environment. They are shrinking in number because so many have gone broke.

There are two ways the market can crash this fall and they are both long shots. An enormous amount of stock could come on the market from unanticipated sources. A war or an assassination could trigger something like this.  Members of the Federal Reserve Open Market Committee could suddenly be overcome by guilt and confess as to what they have been doing and what the outcome will be. Definitely don’t count on that.  The other way is for one of the links to come undone. Friends of the Fed are not doing as well as they were. I know nothing of their exact profit and loss situation. They will cut and run sooner or later. I have no way to tell.

Central banks are not going to give up controlling stock prices. My expectation is that they will be successful in keeping the market up through October. It is getting harder to do. My portfolio consists of cash and just a few small positions in bear etfs. I am a good trader but I know my limitations.  Like everyone else who trades I would have to trade against the government based on what I expect the government to do. Even expecting the market to move higher through October I won’t go long. The chances of a huge one day washout are simply too great.