The Federal Reserve and other central banks represent a clear and present danger to future financial stability.
I’ve been saying for a while central banks are fueling an asset bubble and as global market distortions keep expanding week after week there’s no reason to back to walk away from that assertion but rather to stand up and scream the message from the rooftops especially now that central bankers are casually letting some key truths slip (intended or not).
“The U.S. central bank may begin paring back its bond-buying program as soon as the end of this year, Federal Reserve Bank of Philadelphia President Patrick Harker said. “I could see, potentially, that occurring at the very end of 2021 or early 2022. But it is all going to depend on the course of the economy, which will depend on the course of the virus,”.“It could cause disruption in the markets if we try to do it too soon,” he said.”
There it is, the crux of it all. Not a disruption in the economy, in markets. For a central bank that claims to target the economy with its policies this statement reveals a keen awareness that markets are greatly influenced by the Fed’s QE liquidity operations, QE and otherwise, indeed are dependent on it and the fear of markets reacting is profoundly on the Fed’s mind.
It’s been my long standing contention that with the advent of the 2009 crisis and the Fed’s original intervention methods which were meant to be temporary the Fed has created a market monster that they need to keep feeding for fear it will eat their policy construct alive. A codependency of the worst kind as the market has become so large and disconnected that even a basic correction can be damaging to the economy. We saw this in during the Fed’s policy “mistake” when they were non accommodative for 3 months out of the last 12 years and market dropped hard into Q4 of 2018 immediately impacting retail sales badly.
This inability to extract itself from the policy construct has created a very unhealthy level of codependency. As Mohamed El-Erian comments:
“We have stumbled into very unhealthy codependences; codependences between central banks and investors, between central banks and debt issuers which are governments and companies, and between central banks and politicians. They are all in this unhealthy codependency. It’s like a bad marriage: They’ve ended up relying on each other, and they just don’t know how to get out of it.”
I don’t think central banks quite realize how much irresponsible risk taking is going on. In 2010, Ben Bernanke talked about the benefits, costs and risks that come with unconventional policy. He added, the longer you maintain it, the lower the benefits, the higher the costs and risks. This was ten years ago. At that time, Bernanke was thinking of unconventional policy as an economic bridge. Now, it has become a destination.”…
It’s interesting how “markets” has been redefined to exclude the biggest and more important market of all, the market on main street that sustains the vast majority of the population. The market that has been devastated under these polices and staged crises.
- the fed is owned and controlled by the world’s biggest “investors” (more specifically, disaster capitalists).
- such “investors” buy and sell politicians, governments and corporations like the chattel that they are.
- “codependency” does not describe this situation. Puppeteering does.
- incompetence does not describe such policies. Strategic investment decisions under the disaster capitalist business model does. The carnage on main street is just collateral damage, which itself is an investment opportunity for a DC player.