Fed Buying Bonds Removes All Pretense of Free Markets

James West

Trying to predict price movements in the market has become a fool’s errand in the COVID decade. The primary cause of that is the explosion in liquidity that has occurred as a result of the Quantitative Easing reflex response of central bankers.

Like a dying patient squeezing the morphine trigger faster and faster as the final moment looms and the drug’s efficacy fades, the financial system is accelerating toward oblivion on a flood of fabricated currency.

Lest we forget: understanding that for every dollar Quantitatively Eased into existence, at least 10 more are generated through the ephemeral magic of fractional banking.

All that money metastasizes in the topmost epidermal layer of the banks, with each Tier One dollar exponentially amplifying at each new stop on the balance sheet train of financial institutions.

Since actually deploying capital in the form of investment into new businesses that would stimulate authentic economic growth is a laughable proposition to proprietary traders and quant model engineers, all that money chases a select handful of stocks and their derivatives.

So yes – stocks will keep going up. But you also can’t predict when the algorithm will generate a sell signal and inexplicably cause a stock that just announced record “earnings” to plummet, while a company that just soiled the sheets in terms of earnings does the opposite.

This is why the Fed announced yesterday the plan to begin “buying a broad and diversified portfolio of corporate bonds to support market liquidity and the availability of credit for large employers.

Besides broadcasting the Mother of All Buy Signals, the Federal Reserve has now removed all pretence of “fair and unrestricted competition” in free markets, as per the definition of a free market.

free mar·ket
/ˈˌfrē ˈmärkət/
an economic system in which prices are determined by unrestricted competition between privately owned businesses.
“a free market in broadcasting”

The obvious interpretation is that the US Government is so terrified of the intensification of civil unrest that mass layoffs will certainly create that they are willing to throw capitalism on the dumpster fire now consuming human rights with unbridled fury.

Democracy is the last remaining principle of western civilization left to differentiate the tyrannical and predatory policies of easter governments who routinely deny basic human rights and due legal process to their citizens, and police in riot gear is exactly the image that starts to undermine that illusion.

So let’s summarize:

1. The government has abandoned free market policies in favor of incrementally nationalizing the nations largest employers (bond holders are always ahead of stock holders, and so are the defacto owners of the company’s assets).

2. Hyperinflation of the nation’s currency is underway, with the historical result that it will soon be worthless. Imagine thinking you are isolated from the economic maelstrom engulfing the rest of the nation thanks to your savings only to find out that Farmer Brown will no longer accept USD for eggs, butter, meat and veggies. Where once you were rich, you will find yourself poor.

3. By the time that happens, the storm troopers will be set up in every city to protect the elite from looting and roving bands of militia looking for somebody to feed them.

These are dark days for the United States of America, but the darkest days are yet ahead of us. Knowing what to buy in the event of the above scenario unfolding isn’t just the key to a comfortable retirement: it will be the key to survival in the upcoming breakdown in civil order and legal protections.

James West

James West

Editor and Publisher

James West founded Midas Letter in 2008 and has since been covering the best of Canadian and US small cap companies. He covers global economics, monetary policy, geopolitical evolution, political corruption, commodities, cannabis and cryptocurrencies. As an active market participant, James is not a journalist and is invariably discussing markets...
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