The narcotic references speak for themselves.
“The repo market has been drugged into submission by the Fed,” said Jim Bianco, head of Bianco Research. “That’s fine for a while. But what I am getting concerned about is that they’re not figuring a way to get it off the drug and get it back to normal, and that will be a problem longer term for them.”
Investors have long complained about the Fed hand-holding the market, injecting trillions of dollars in liquidity and keeping interest rates artificially low during and after the financial crisis.
This is a different situation, though.
Rather than looking to goose the economy back to health, the Fed is now using its balance sheet to make sure banks have enough reserves and an adequate amount of capital is flowing through the system to keep things running efficiently. The effort also is aimed at keeping the Fed’s own overnight funds rate within the 25 basis point target range it employs.
It’s like an addict who has to keep getting the fix, not for a new high, but to keep from going into withdrawals. This is your economy. This is your economy on sorcery.
RPC explains that this is a global and system-wide issue.
Today central banks not only support bond prices by heavy purchases, they do the same thing in the equity market. The Bank of Japan, for example, owns 77.5% of Japan’s ETF (Exchange Traded Fund) market, having bought nearly 23 trillion yen of the ETF market since 2013. https://www.reuters.com/article/us-japan-economy-boj/kuroda-defends-japan-central-banks-etf-buying-sees-no-near-term-exit-idUSKBN1O602Q
The Federal Reserve owns assets equal to 20% of US GDP. The European Central Bank owns assets equal to 40% of the euro-zone economy. The Bank of Japan’s asset hoard now exceeds the Japanese economy in size. https://www.bloomberg.com/news/articles/2018-11-13/bank-of-japan-s-hoard-of-assets-is-now-bigger-than-the-economy
With this background, we can now get on with the story.
For a decade we have had a stock market based on (1) the profits from lower labor costs by producing offshore the goods and services corporations sell to Americans, thereby destroying the American middle class and the tax base of cities and states, (2) the use of corporate profits for buying back the corporations’ stock, and by borrowing to buy back stock, thus decapitalizing the corporations in order to support stock prices, managerial bonuses and shareholder capital gains, and (3) Quantitative Easing (QE) which pumped trillions of dollars into US financial markets, thus pushing up the prices of financial assets. If the money the Federal Reserve created in order to support the solvency of the “banks too big to fail” had gone into the economy, hyperinflation in consumer prices would have been the result. Instead the money caused inflation in the prices of financial assets, and this is the explanation of why a small percentage of people—shareholders—have accumulated most of the gains in income and wealth.
The extraordinary increase in the inequality of incomes in the United States is the consequence of using economic policy to support the New York Banks, which has meant supporting the prices of the bad assets on their balance sheets.
In America today truth gets no respect from anyone whether right, left, liberal, conservative, Democrat, Republican. The idiot Hillary has alleged that the only sane Democrat—Tulsi Gabbard— is a Russian agent! It blows the mind. And the presstitutes treat the absurd allegation as if it is a fact.
Right on all counts. The sorcery has begotten inequality that begins to look like slavery. Most people seem okay, at present, with the situation. One wonders when and how that will change. Ask any addict – the crash always comes.