The Federal Reserve System, the privately-owned central bank that most Americans believe is a department of the U.S. government, just publicly gave itself the last hammer it needs to nail shut the coffin they shoved free markets into.
By admitting it’s going to “think about financial conditions,” meaning the stock market, when exercising control over interest rates, the Federal debt, consumer and producer prices, employment, the economy, and investor returns, the Fed cemented its position as chief of the new command economy.
Long Live the Free Markets
The market’s got another 5%, maybe 6%, to go higher. Then it’s going to hit a brick wall.
We’ll see then what the Fed’s going to do about it, now that they’ve soaked all their silver bullets in briny butter.
We’re okay for now.
And we might even jump on this short-term melt-up, now that we know it’s been “Federally” guaranteed.
We’ll have to wait and see – and that’s exactly what we’re doing in my elite research service, The Money Zone.
It’s not fun to sit on your hands and wait the storm out, but sometimes that’s just a part of trading.
But readers of The Money Zone are less than antsy – they’ve already this year had the opportunity to grab gains of 87.50% and 190% on two halves of a PGR recommendation, 52.63% on the first half of a USO recommendation, and 100% on an FDC recommendation.
The limbo we’re in now ain’t nothing – and once things settle down, we’ll be back into it, and you’re going to want to be on the right side.
Click here to learn more.
The Creature from Jekyll Island
While the founding of the United States of America and the colonies’ victory in the Revolutionary War is the greatest known story in American history, the surreptitious founding of the Federal Reserve System and the conspiracy to legitimize it by an Act of Congress is the greatest little-known story in our history.
The story facts are exposed in extraordinary detail in G. Edward Griffin’s The Creature from Jekyll Island.
With banks failing and facing insolvency across the country, from over lending, market speculation and lack of reserves, the most powerful bankers in America and Europe got together to create a private central bank to bail themselves out when they suffered from their own greed.
That’s what central banks do.
Their constituents are the banks they backstop. They rescue their constituents, often letting competitors fail so more powerful constituents can consolidate their control and enhance their future profitability.
Long after Congress was hoodwinked into passing the Federal Reserve Act of 1913, which was signed into law by newly elected president Woodrow Wilson, who was bankrolled by the backers of the Act he signed on Christmas Eve., the Fed’s ever-increasing power got them the “dual mandate.”
In early 1975, Congress adopted Resolution 133 instructing the Federal Reserve to, among other things: “maintain long run growth of the monetary and credit aggregates commensurate with the economy’s long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.”
While the Fed’s power to expand and contract the country’s monetary base and raise and lower interest rates to effect stable prices was a given, by 1975 stagflation was crippling economic growth and driving unemployment higher. Congress had to do something.
They punted to the Federal Reserve.
That’s where the clause “to promote effectively the goals of maximum employment” came from. That’ s the Fed’s “dual mandate,” stable prices by controlling inflation and maximizing employment.
In the course of exercising its powers to effect its dual mandate, the Fed has impacted free markets by artificially manipulating interest rates, usually too often in the wrong direction for too long, impacting credit markets, derivatives markets, currency markets, and to a large extent, global markets.
It’s not as if the Fed hasn’t also used its powers to manipulate stock prices – it’s done that, too, and admitted it.
Most recently, after the Fed kept interest rates too low for too long, inflating mortgage market bubbles and causing the financial meltdown in 2008, it announced as part of its recovery efforts that interest rates would be artificially lowered. This time so low that riskier investments, meaning stocks, would be the best place for investors to seek returns, through capital appreciation.
The Fed’s articulated policy was to create a “wealth effect” whereby rising stock prices would lift sunk retirement accounts and pension plans, make the public more confident by watching the stock market rise, and ultimately stimulate consumption as the public felt wealthier.
It worked. Stocks rose steadily for nine years.
The problem, the same one the Fed’s always responsible for, is they kept rates too low for too long.
When the Fed first said they were going to “taper” their purchases of bonds, the stock market threw a temper tantrum, dropping 10% in a matter of days.
Repeated temper tantrums eventually gave way to acceptance that rates could rise as long as the stock market kept rising. That’s what happened.
Despite several rate increases over President Trump’s first two years in office, equity markets continued higher, making all-time highs this past October.
Then everything changed.
Hail to the King
With the Fed announcing they’d keep raising rates to “normalize” them and pronouncing the wind-down, or “run-off” of assets maturing on their $4.5 trillion balance sheet, markets freaked and proceeded to drop 20%, or very close to that level for some major benchmarks.
That prompted the President to attack the Fed for killing the stock market rally he wanted to take credit for.
The Fed caved in and to make sure stock market investors understood they were looking out for them, the president of the New York Fed, John Williams, publicly announced the Fed was “paying attention to market signals.”
That’s the Federal Reserve’s third mandate, manipulating equity markets. They gifted themselves that one and no one blinked.
And to make sure the rally New York Fed president Williams helped take root wasn’t going anywhere but higher, Federal Reserve Chair Jerome Powell sheepishly, nervously even, announced on Wednesday in his “presser” to spread the Fed’s gospel, that rate increases were off the calendar and “patience” was the new mantra, make that mandate.
But he wanted an exclamation point to make sure the message was emphatic, and he delivered that by saying the formerly announced runoff of the Fed’s balance sheet which was going to be on “autopilot” was now off the table.
The Dow Jones Industrial jumped more than 500 points before he was finished speaking.
Mission accomplished. The announcement of the self-anointed Triple Mandate in full public view, accompanied by a 500-point exclamation point that no one wouldn’t like.
Except for me – and you when I tell you what they’ve done.
The triple mandate is the Fed’s carte blanche card to manipulate any market any time it needs to do what it needs to do for its constituents.
Of course, their actions will be cloaked in “for the good of the economy and country” rhetoric.
But make no mistake, pull back the curtain and you’ll see it’s for the benefit of their banking and Wall Street constituents.
Free markets are dead. Long live the free markets.
Hail the new King, the Command Economy. Long live the Command Economy.
If you’re going to miss free markets and our capitalist democracy and you want to kill the Command King, we need to kill the Fed.
That means, have it struck out of existence by Congress.