How do we know that?
Just take a look at GDP. Second Quarter GDP came in at a dismal 1.2 percent even though interest rates are still locked at near-zero and the Fed is still recycling the cash from maturing bonds into more government debt.
Do you know what 1.2 percent GDP means?
It means that spending is weak, business investment is anemic, personal consumption is in the toilet and credit growth is kaput. It means that the economy has basically stopped breathing, been taken off the respirator and is being rushed to the morgue for embalming before rigor mortis sets in. It means that the people who are assigned the task of managing the system either don't know how the system works or have an ulterior motive for the policies they're using.
So, which is it? Is the Fed a moron or a liar?
Now we've all heard the expression, "The definition of insanity is doing the same thing over and over again, and expecting a different result."
Well, the Fed has been doing the same thing for the last seven years -- dumping money into the financial system while predicting stronger growth. That would seem to suggest that the Fed is insane, but is the Fed insane?
No, in fact, the members of the FOMC are extremely-bright, well-educated professionals who have a solid grasp of the economy and the many intricacies of the financial system. These are smart guys, real smart. So, maybe they have an ulterior motive. Maybe that's why they've stuck with the same failed policies all these years.
But if they have an ulterior motive, then what is it? What are they trying to achieve?
The easiest way to answer that question is by simply following the money. We've already seen that QE and zero rates have done nothing for growth, so --the question is -- where have these policies had the greatest impact?
Why, the stock market, of course!
Did you know that the Dow Jones Industrials (DJIA) bottomed on March 9, 2009 at 6,507. As of Thursday (9-15-16), the Dow finished the day at 18,211 nearly three times higher. The same goes for the S&P 500 which slipped to 676 in March 2009, but rebounded to 2,147 as of yesterday afternoon. Then there's the Nasdaq which fared even better bouncing back from an abysmal 1,268 in 2009 to a lofty 5,249 yesterday.
Now if stocks rise due to fundamentals, then that's just great because it means the underlying strength of the economy is driving prices higher. But if stock prices rise because the people who are supposed to be the referees (The Fed) are gaming the system by printing up trillions of dollars and sticking it in the financial markets so their crooked friends can send their kids to Ivy League schools and drive around in Lamborghinis, then it's not so great.
When the Fed pumps liquidity directly into the financial system, that liquidity cannot accurately be called "monetary stimulus." It's not stimulus anymore than if the Fed put a billion bucks into your fledgling-Podunk landscape business. It's a subsidy, a gift, a handout. Even so, $3 trillion is a lot of money, enough money to light a fire under stocks and send them into the stratosphere. Which it has.
But let's not kid ourselves, stocks didn't triple because production, earnings and growth are all going great-guns. That's not it at all, in fact, they're all unusually weak. Stocks are in record territory because the Fed's relentless interventions have kept them elevated, which has propped up the insolvent banking system and generated gigantic profits for Wall Street.
And while rising stock prices don't necessarily prove that the Fed has an ulterior motive; identifying the people who benefit from those inflated prices certainly does. After all, who owns stocks and bonds?
(Note: You can view every article as one long page if you sign up as an Advocate Member, or higher).
10
8
8
