The Fed Will Inflate Until It Can’t

Wednesday, 23 September 2020

Recently we read that the stock market was going down. This author,
who is selling a book, claimed that the lamestreet media is crying out
the stock market will go down further.

Maybe he has something here besides the book promotion.

Is the “media” priming us for MOAR Fed inflation? Why does the Fed have to inflate?

The politicians wish to avoid responsibility. This way they can spend massive amounts of “money” on the electorate without raising taxes. Interest rates on bonds indicate their prices. The higher the interest rate, the lower the price. Owners of bonds consider them assets, because money goes into their pocket as a result of that ownership. What happens when the supply of anything goes up, while the demand remains constant? The price has to go down. The federal government has been increasing the supply of U.S. treasury bonds. There is no way to measure the real demand for them, because the whole treasury market is manipulated by the FOMC and the Fed. The Fed and the FOMC arrange for a buying spree to soak up those extra bonds and keep the prices up.

The Fed exists to prop up prices for assets, like bonds. MOAR than the “lender” of last resort, it is the “buyer” of last resort and guess who ultimately guarantees the prices of those assets. If you guessed “the tax payer”, go to the head of the class!

Why would the banks need to prop up these asset prices? It is their balance sheets. If the “value” of the asset side goes down too much,their capital goes down. If their capital goes down too low, they can’t lend anymore. If they can’t lend anymore, they close.

All this makes Chairman Powell and his boys the most powerful group in town and basically makes this stupid Presidential election a sham. The man or woman in the White house means almost nothing.

If you don’t believe me, perhaps Chris Whalen, who used to work at the
Fed can persuade you:

“The primary dealers as a group almost got blown out in March, like most restaurants in lower Manhattan right about now. The Powell Fed knows that direct support for the Treasury market via QE is a permanent fixture on the economic scene.

And they know that the dealer banks have zero appetite for supporting a failing Treasury market, meaning that the Fed of New York is the market. Indeed, the Fed’s supposed change in policy regarding inflation targeting was really just window dressing, lipstick on the proverbial pig. The economists will talk about inflation, but the reality is in more or less continuous open market operations.

Just as with downside of manipulating interest expense, the economist fraternity misses the punch line. Inflation must be higher because the Fed must continue to buy trillions in Treasury debt and agency MBS each year. No matter who wins the presidential election in November, have no doubt that Chairman Powell is the most important man in town.”

I would take the “economist fraternity” a little farther. Most
“economists” depend upon Fed “money”. I think that makes most of them shills.

Have a good day!

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