'Some of my favorite internationally known analysts believe that Jay will blink and accommodate Wall Street under the rubric of promoting financial stability. This will of course make inflation worse, creating a bigger problem.''..First, we must realize
quantitative easing was intentionally designed to push up stock prices. It was not a surprise to policymakers. From my friend Peter Boockvar:
“I want to quote here what former Fed Chair Ben ‘arsonist turned firefighter’ Bernanke said in a November 4th, 2010 editorial he wrote in The Washington Post defending QE1 and the onset of QE2 in terms of its impact on stocks. With respect to QE1 and at the time the newly implemented QE2, ‘This approach eased financial conditions in the past and, so far, looks to be effective again. Stock prices rose and long-term interest rates fell when investors began to anticipate this additional action. Easier financial conditions will promote economic growth…And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.’
“Thus, rather than relying on savings, investment, and quicker income to drive economic growth, QE was specifically meant to lift stock prices in order to do so instead. It is not a symptom of QE, it was a direct intended effect. In reverse, the response in stocks should not be a surprise.”All this is a problem because financial markets are hooked on the Fed’s drug infusions. Free liquidity (or better than free, in real terms) is Wall Street’s fentanyl. The US Treasury is similarly addicted .. continuing it will have side effects .. namely an overheated economy and even higher inflation.
..
Some of my favorite internationally known analysts believe that Jay will blink and accommodate Wall Street under the rubric of promoting financial stability. This will of course make inflation worse, creating a bigger problem.
I hope Powell sees that stopping inflation is his number-one job because that affects Main Street. If he chooses Wall Street over Main Street, he will destroy the Fed’s inflation fighting credibility and provoke a major outcry against the “elite” protecting Wall Street insiders. Forget that many of them own stocks. All they will see is that a government (and most people see the Federal Reserve as the government) chose the wealthy over the middle class and Main Street. I cannot even begin to say how big a mistake this will be. Like Titanic-level disaster.
WWJD? I have no idea. Further, I don’t think he does either. At most he will say that his choice will depend on the data at that time. He will have a very dovish and politicized board pushing him, not wanting a weak stock market in an election year.
As I keep saying, Powell will have only bad and difficult choices. Let us hope he makes the difficult one.'
- John Mauldin,
A Path-Dependent Year—WWJD? January 7, 2022
ContextEvery Measure of Real Interest Rates Shows the Fed is Out of Control, December 29, 2021
(Banking Reform) - '..the Fed has lost every systematic tether to common sense..' - 'Fed Operations Look More Like a Ponzi Scheme..'The House of Lords is Concerned Over a Dangerous Addiction to QE, July 10, 2021
Food! What's in Your Basket and How Much is Inflation Eating? December 29, 2021
'.. And for the first time that anyone can recall, more than half of America’s households have less income than is considered necessary to buy the average-priced used vehicle.'
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$29,000 for an average used car? Would-be buyers are aghast, January 3, 2022
US home prices surge 18.4% in October, December 28, 2021
'..asset inflation is the most dangerous type of inflation..''.."financial slavery" that grips the world .. are of high human and personal cost..''..a complete breakdown in discipline - in central banking, in Washington borrowing and spending..'Paul Volcker, at 91, Sees ‘a Hell of a Mess in Every Direction’, 2018
'..global central bankers .. history's most reckless monetary mismanagement .. Harsh geopolitical fallout is unavoidable..''They got on the wrong path about a hundred years ago by assuming that the economy was like a machine.'