Over the past decade, the one common theme despite the political upheaval and growing social and geopolitical instability, was that the market would keep marching higher and the Fed would continue injecting liquidity into the system. The second common theme is that despite sparking unprecedented asset price inflation, prices as measured across the broader economy – using the flawed CPI metric and certainly stagnant worker wages – would remain subdued (as a reminder, the Fed is desperate to ignite broad inflation as that is the only way the countless trillions of excess debt can be eliminated and has so far failed to do so).
The Fed’s failure to reach its inflation target – which prompted the US central bank to radically overhaul its monetary dogma last month and unveil Flexible Average Inflation Targeting (or FAIT) whereby the Fed will allow inflation to run hot without hiking rates – has sparked broad criticism from the economic establishment, even though as we showed in June, deflation is now a direct function of the Fed’s unconventional monetary policies as the lower yields slide, the lower the propensity to spend. In other words, the harder the Fed fights to stimulate inflation, the more deflation and more saving it spurs as a result (incidentally this is not the first time this “discovery” was made, in December we wrote “One Bank Makes A Stunning Discovery – The Fed’s Rate Cuts Are Now Deflationary“). …
Even people who know better are reluctant to abandon the official narrative that the “fed”‘s actions are being forced by circumstances, rather than the other way around. They are the experts, the altruistic monetary maestros who are somehow constantly flummoxed by the very very complicated question of how much money should be allowed to flow in the economy.
Aside from maintaining a top-down inflation gradient (which actually results in currency disappearing at the street level as loan principals are paid off, which is why it must be continuously replenished at the top: trickle-down money, trickle-up assets) and being a clearing house for kickbacks to their TBTF shareholders, the fed has a more conventional business model. It is disaster capitalism. But the profits don’t go to the fed directly, they are harvested from the markets by the TBTF “banks” who formulate fed policy in secret at regularly scheduled meetings. This is not a conspiracy “theory”, it’s a matter of public record. The only “theory” involves the question of how they invest afterward using their insider knowledge of future fed policy. But you don’t need to be a rocket scientist to deduce the answer. Why does the fed keep crashing the economy? Because crashes, puts and shorts are where the real rate of return is.
Shouldn’t they be required to produce SOMETHING tangible? Even paper coupons are better than electrons.