Sunday, March 8, 2020

End the Fed. No. Really.

The result of the Fed’s artificial economic “boost” will be the same as it has been since the Fed was established in 1913: a bubble of malinvestment and consumer loan defaults that will end up plunging the country in a bubble-bursting recession or even depression.

That’s because genuine prosperity in a country cannot be generated by central bank manipulations. If that were the case, every country on earth would be characterized by ever-growing standards of living. In fact, a central bank does the exact opposite — it lowers a nation’s standard of living through its artificial manipulations of interest rates and its expansion and contraction of the money supply.

The never-ending cycle of monetary crises and chaos shouldn’t surprise anyone. The Federal Reserve is a socialist institution, in that it is based on the socialist concept of central planning. A central bank consists of a board of government commissars who have the responsibility of planning the monetary affairs of hundreds of millions of people.

It cannot be done. Socialism is an inherently defective economic system. It produces monetary crises and chaos, which is what we have seen in the United States since the Fed was established in 1913.[1]

Another guy, whose name I can't recall just now, recently observed that the supposed salutary effects of the Fed's recent manipulations [yet again] ensure, not prosperity, but the bubble economy, dangerous risk taking, and malinvestment. If he didn't mention the lack of accurate price discovery, he should have. That's some ways from an accurate statement of the man's views but close enough.

Low rates, which the Fed has just embraced yet again, . . . zzzz . . . punish savers and drive normal people wanting some semblance of a return and/or simple "protection" against inflation into . . . wait for it . . . the stock market, which is at diseased heights. These heights reflect an accumulation of every evasion, delusion, and collusion that our genius financial and business class can devise, suffer from, or engage in. Good job, guys! An indicator of prosperity and economic health a la Mr. Trump, it isn't.

So a pension fund (or mom and dad) can invest $100,000 in a stock with a P/E ratio of 22:1 (S&P Aug. 2019) and earn a 4.5% return on that investment. Assuming an inflation rate of 2.5% -- it is to laugh – that's a 2.0% gain.

But the fed -- with its actual policy to drive money into frothy risk-on investments and to goose inflation with its insane monetary pumping – is not going to mention this, in so many words, or even hint at it.

Furthermore, I don't know offhand how much the Dow declined recently but say it's 3%. That's a loss of $3,000 in the value of one's investment if one bought at the peak of the market, which some people did do. This is the "risk" part of "risk on" investments. You still get the $4,500 earnings from your stock (assuming the company and the economy are actually healthy) but if you decide to liquidate your investment at the end of the year, you get $4,500-$3,000-(0.025*$4,500)-($97,000*0.025) or $1,500-($112.50)-($2,425) or a loss of $1,038 or a return of -1.04%. Not a good result for those entering the stock market late in the game and assuming only minor capital loss (3%) and "minor" inflation (2.5%). "Minor" meaning that you lose half (70/2.5) of your investment in 28 years. Good to know that 2.0% is the Fed's actual policy and has been since the Normans invaded the United Kingdom. Incremental theft for the higher good of the banks, I presume.

And have we seen the end of the market's decline? The Coronaspasm will be damaging it appears and so will the result of a decaying economy (massive deficits, massive debt, massive unfunded liabilities, massive political stupidity) exacerbated by ruinous, pointless wars and geriatric alliances. Those chickens WILL come home to roost at some time. Where do you put your money if not into malinvestments like satanic espresso mills or dog-walking franchises? Is this the America that was the arsenal of democracy?

As Peter Shiff notes:

The fed is not trying to stimulate [anything] and they could give a rip about the average persons' welfare..... the Fed is only trying to stop bankruptcy from occurring as a result of all the toxic garbage on the banks' balance sheets, overinflated property included.

* * * *

There is no economy. There is insolvency masked with liquidity so that we don't have bankruptcy.[2]

Hell of a way to run a railroad, get down to it. Who are these clowns? They sure has hell aren't playing on my side.

As they say in the movies, "Over and out."

[1] "End The Fed!" By Jacob Hornberger, ZeroHedge, 3/8/20 (emphasis removed).
[2] "Peter Schiff: The Most Reckless Combination Of Monetary And Fiscal Policy In History." By Peter Shiff, ZeroHedge, 12/23/19.

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