Here’s the relevant inventory of the Bubble Finance Era:
- There’s essentially no free-market interest rate.
- Real yields across the maturity spectrum are nearly zero.
- The 10-year trend rate of real gross domestic product (GDP) growth is a punk 1.5%.
Monetary central planners have corrupted the system. They’ve neutered any process that would cure speculative rot on Wall Street. They always flood the casino with easy money just at the point when honest interest rates would make speculation dear and impose losses and pain essential to healthy, two-way markets.
It’s often shaken but never purged. Indeed, there was never any need in the very first place for Alan Greenspan’s radical suppression of interest rates from 6.5% to 1.0% during the three years after the dot-com crash in 2000.
It’s almost impossible to believe now, but the Federal Reserve wasn’t created to rescue Wall Street speculators.
The legislation Carter Glass wrote in 1913 forbid it from owing government debt. It made no provision for open-market intervention. It permitted the Fed to rediscount only sound commercial paper against sold goods (receivables) or finished inventory.
And, most importantly, it set its discount at a penalty spread above the free-market interest rate.
America is at a crossroads. The middle class is disappearing… government spending is out of control… and the implosion of Bubble Finance will cause the greatest market crash in history. So, if you need access to your nest egg in the next five years and can’t afford another market crash, it’s time to take matters into your own hands. Find out what to do, right here.
Whether the principles undergirding the Glass’s Fed were sustainable remains a matter of debate for academic historians.
They were never really tested. “The Great War” intervened hard upon its enactment. Thus, the Fed was in the business of buying and monetizing government debt and operating daily in the canyons of Wall Street.
You can be sure, though, that, as originally conceived, it wouldn’t have rejected the “cleansing” paradigm established by J.P. Morgan’s panic-fighting bankers’ syndicate in 1907.
That mechanism, mind you, provided back-up liquidity to the city and country banks that financed what was then a rapidly expanding Main Street economy.
By contrast, Greenspan’s Fed is oriented entirely toward Wall Street.
His original teacup-shaped rate-cutting campaign in the name of Economy from 2001 through 2006 was of value mainly to carry-traders. It taught them that, in the face of a stock market collapse, the Fed would aggressively reflate asset prices.
And, further, when it came to “normalization,” the Fed made absolutely clear it would do so deliberately, incrementally, in baby-steps…
There was virtually no risk for speculators. But there were seeds of demise…
Indeed, when the subprime-mortgage-driven housing bubble collapsed, the purge was stopped in its tracks within two weeks of Lehman Brothers’ implosion.
Most visibly, that was the Fed’s $80 billion bailout of AIG and Congress’s $700 billion “Troubled Asset Relief Program.”
More crucially, there were the $100 billion liquidity lifeline extended to an insolvent Morgan Stanley; similar amounts pumped into Goldman Sachs; $19 billion cycled back into Goldman via the AIG rescue; the resuscitation of Merrill Lynch by the Imperial Washington-mandated shotgun marriage with Bank America; and comparable arrangements between Washington Mutual and JPMorgan and Wachovia and Wells Fargo.
What they wanted to do was freeze the speculative rot in place. They thought they’d prevent the spread of financial contagion across the length and breadth of the Main Street economy. This was always nonsense. There never were any runs on Main Street banks. They weren’t involved in the subprime business.
By abandoning all pretense of sound money and free-market rules, they’ve encouraged it. And it’s metastasizing.
Nevertheless, in the name of Economy, the Fed drove the money-market rate to the zero bound. They kept it there for the better part of eight years. This was an egregious extension of Greenspan’s destructive teacup move.
And it happened only because our monetary central planners aimed to please Wall Street. In fact, they triggered hissy-fits each time they took even baby-steps toward “normalization.” Remember the “Taper Tantrum”?
It’s clearer than ever that Wall Street owns the Federal Reserve – lock, stock, and liquidity-oozing double-barrels.
For the Alert and Knowledgeable Citizen…
Desperate times call for… “common sense” measures.
And these are desperate times… Markets are corrupted by monetary central planning. They’re confused. And the road back is going to be treacherous.
We’re looking at a major re-pricing for all financial assets. And thousand-point intraday or day-to-day swings are part of that equation. Those can be frightening… for “buy and hold” investors.
I have a different approach, one that combines strategy and tactics into a plan flexible enough for you to survive and thrive amid the coming chaos. It’s called “The Stockman Model.”
All we’re after is a little stability, perhaps a chance to pocket a windfall when opportunity presents…
To common sense,