Friday , 19 April 2024

Will Stock Markets Continue to Out-perform Now That Fed Monetary Heroin Has Been Withdrawn?

The above introductory comments are edited excerpts from an article* by Michael Snyder ( entitled From This Day Forward, We Will Watch How The Stock Market Performs Without The Fed’s Monetary Heroin.

Snyder goes on to say in further edited excerpts:

Since November 2008, the Fed has created about 3.5 trillion dollars and pumped it into the financial system…[and] pretty much everyone agrees that this has been a tremendous boon for the financial markets…In essence, the entire quantitative easing program was a massive 3.5 trillion dollar gift to Wall Street.  If that sounds unfair to you, that is because it is unfair.

Why is the Federal Reserve finally ending quantitative easing? Well, officially the Fed says that it is because there has been so much improvement in the labor market…but that is not true at all.

[As can be seen in the chart below,] the percentage of Americans that are working right now is about the same as it was during the depths of the last recession…so, [in fact,] there has been no “employment recovery” to speak of at all.

Employment Population Ratio 2014

…[In addition,] the percentage of Americans that are homeowners has been steadily falling throughout the quantitative easing era…[as can be seen in the chart below] so let’s put the lie that quantitative easing helped the “real economy” to rest.  It did no such thing. Instead, what QE did do was massively inflate stock prices – [nothing more!].

Homeownership Rate 2014

Last Wednesday former Fed chairman Alan Greenspan made a speech to the Council of Foreign Relations in which he said that…”[while] the purchases of Treasury and mortgage-backed securities did help lift asset prices and lower borrowing costs, they didn’t do much for the real economy…[where] effective demand is dead in the water” and the effort to boost it via bond buying “has not worked,” [but] boosting asset prices, however, has been “a terrific success.”

Moving forward, what did Greenspan tell the members of the Council on Foreign Relations that they should do with their money? This might surprise you… Mr. Greenspan said gold is a good place to put money these days given its value as a currency outside of the policies conducted by governments. Wow!..

Since November 2008, every time there has been an interruption in the Fed’s quantitative easing program, the stock market has gone down substantially. Will that happen again this time? Well, the market is certainly primed for it. 

We are repeating so many of the very same patterns that we saw just prior to the last two financial crashes:

  • there have been three dramatic peaks in margin debt in the last twenty years.
    • One of those peaks came early in the year 2000 just before the dotcom bubble burst.
    • The second of those peaks came in the middle of 2007 just before the subprime mortgage meltdown happened and
    • the third of those peaks happened earlier this year.

You can view  a chart that shows these peaks very clearly right here.

The Federal Reserve appears to be confident that the stock market will be okay without the monetary heroin that it has been supplying. We shall see, but it should be deeply troubling to all Americans that this unelected, unaccountable body of central bankers has far more power over our economy than anyone else does. 

During election season, our politicians get up and give speeches about what they will “do for the economy”, but the truth is that they are essentially powerless compared to the immense power that the Federal Reserve wields.  Just a few choice words from Janet Yellen can cause the financial markets to rise or fall dramatically.  The same cannot be said of any U.S. Senator.

We are told that:

  • monetary policy is “too important” to be exposed to politics and
  • the independence of the Federal Reserve is “sacred” and must never be interfered with.

I say that is a bunch of nonsense. No organization should have the power to print up trillions of dollars out of thin air and give it to their friends.

The Federal Reserve is completely and totally out of control, and Congress needs to start exerting power over it [and] the first step is to get in there and do a comprehensive audit of the Fed’s books as U.S. Senator Ted Cruz called for recently in a USA Today saying:

  • “Americans are seeing near-zero interest rates on their savings accounts while
  • median incomes are falling, and
  • millions of people are facing
    • higher gas prices,
    • food prices,
    • electricity prices,
    • health insurance prices.
  • Enough is enough. The Federal Reserve needs to open its books — Americans deserve a sound and stable dollar.”

Whether you agree with Ted Cruz on other issues or not, this is one issue that all Americans should be able to agree on.

If you study any of our major economic problems, usually you will find that the Federal Reserve is at the heart of that problem so if we ever hope to solve the issues that are plaguing our economy, the Fed is going to need to be dealt with.

Hopefully the American people will start to send more representatives to Washington D.C. that understand this.

Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.

* (Copyright © 2014 The Economic Collapse)

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One comment

  1. RE: “Mr. Greenspan said gold is a good place to put money these days given its value as a currency outside of the policies conducted by governments. ”

    Perhaps we are seeing the BOTTOM of the current PM downward swing, and if so only those with enough assists can start buying PM before they “resurface” as THE place to seek shelter from the upcoming economic MEGA-storm that has been brewing for quite some time.