Why The Fed Can't, And Won't, Let The Stock Market Crash

Tyler Durden's picture

When it comes to the stock market, while the biggest, and according to many only, beneficiary of the Fed's ZIRP/QE policies of the past 6 years has been the wealthiest 1%, the reality is that said top crust of US society no longer needs the S&P to continue its relentless, manipulated and centrally-planned levitation.

Between a third Hamptons residence, a 5th Ferrari, and a 7th French villa, not to mention a few tons of gold, the super wealthy have long since booked their paper profits, and transferred their "wealth" out of the intangible and into actual, physical assets.

Therefore it is not the 1% that would suffer the most should the S&P have a post-Lehman like 50%+ wipe out, which also means that the Federal Reserve's only mandate of pushing asset prices to ever higher levels while pretending it does so to boost employment and keep inflation at 2% is no longer for the benefit of the uber-wealthy.

So why can't, or rather won't, the Fed let the bubble market collapse once again? Simple - as the following chart shows, the illusion of wealth is now most critical when preserving the myth of the welfare state: some 50% of all US pension fund assets are invested in stocks and only 20% in Treasurys. This compares to less than 10% for Japan which also explains why for Abe, the only lifeline left is pushing pension funds out of their existing asset allocation sweet spot and forcing them to buy stocks. Whether this gambit will work is unknown.

What, however, is known is that in a country like Germany between 2005 and 2012 the Pension funds asset rotation out of stocks and into bonds has been truly unprecedented, with stocks plummeting from 30%+ of total exposure to less than 5%!  It also explains why Germany was, is and always will be leery of allowing the ECB to pursue asset bubble-inflating policies which would barely benefit pension funds on the equity side, while any rising inflation would crush the mark-to-market value of bond holdings.

But back to the US: while the 1%'s paper fungible, market-driven wealth has been long converted into other hard asset formats, it is the paper gains for the future retirees that are on the chopping block should the S&P 500 "get it." As such, it is the fate of future retirement funds, and in fact, the very core of the US welfare state that is at stake should there be a massive market crash. In which case what happened in Ferguson will be a polite stroll in the park compared to the chaos that would ensue should another generation of Americans wake up with half or more of their paper wealth wiped out overnight.

None of which touches on the most important question: will the Fed be able to avoid a market crash?

The answer of course is no. But while we have explained countless times why central-planning always fails in the end, we will give the podium to Fred Hickey, aka the High-Tech Strategist, who gives a very poetic summary of what the Fed's endgame will look like:

The Fed hasn't made the world a better place with its interventions. It has created moral hazard, encouraged the formation of asset bubbles that eventually pop (leaving economic messes), widened the wealth inequality gap to record levels, discouraged savings and investment, severely penalized retirees on fixed incomes, encouraged spending, funded massive government deficit spending by monetizing the debts, lengthened the recession and likely reduced the number of jobs that would have been created if the economy had been allowed to take its normal course. Eventually the Fed's policy interventions will also have created debilitating, widespread consumer inflation, the "cruelest tax" against the poor and middle classes.

And the final nail in the failed Keynesian school of economic thought's coffin, will come when a hundred million current and future retirees wake up one day, realize that the welfare state dream is over, and suddenly realize they have nothing left to lose.

It is only then that the 1% will be truly in peril, as one after another revolution in the history of the world has shown all too clearly.

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Bossman1967's picture

If your stupid enough to own stocks now then you deserve what you get! It is time to let the truth come out let things go back to reality so those of us who know the truth can start to invest again. Id rather have an honest 1percent or zero that watch , country burn

TeethVillage88s's picture

Kudlow is on the Radio AMUSING workers with Liberal Economic again.


Not Epic Fail. But coordinated Racketeering and Collusion.

nidaar's picture

"some 50% of all US pension fund assets are invested in stocks "

This is indeed the reason they will let it crash under its own weight. Since when they care about interests of other than the .05 ?

Oldwood's picture

I have always suspected that wall street's goal was to ramp the market, sell to retail and then dump. What I'm wondering is if retirement funds are retail, because if they are, the market is burnt toast. Government will only bail if there is no political cost, but after TARP and all the rest, they might have trouble doing it in the scale required this time.

All Risk No Reward's picture

Wrong paradigm, wrong conclusion.

The bust is equally important to the bubble.

The bust is where the Banksters mop up all the assets of their mark debtors - including government.






On purpose.

Read Sun Tzu Art of War...  The best warriors is never identified as such.

Elvis the Pelvis's picture

The FED's power is limited.  Bad news.  17,000 Dow was the peak.  This bubble is about to pop no matter what Yellen does.  Bitchez.

California Nightmares's picture

I'm thinking that many of the ruling elites feel that the pensioners don't even deserve their pensions, many of which were secured through union organizing.  


Anusocracy's picture

If the Fed ceased to exist, what exactly would the Treasury not do, or not be able to do, that is being done by the Fed now?

After the US economy crashes and gets decapitated punching through the windshield, the government will double down, with or without the Fed, on its ruinous policies.

It has to, for Empire.

All Risk No Reward's picture

The Empire IS NOT America - never was.

The Empire WAS NOT British - never was.

The Empire is Supranational Debt Money Cartel that controls their vassal governments through their ability to finance their vassal governments.

If you want colorful imagery, think about it this way...

"There I saw a woman sitting on a scarlet beast that was covered with blasphemous names and had seven heads and ten horns. The woman was dressed in purple and scarlet, and was glittering with gold, precious stones and pearls. She held a golden cup in her hand, filled with abominable things and the filth of her adulteries. The name written on her forehead was a mystery:

babylon the great

the mother of prostitutes

and of the abominations of the earth.

I saw that the woman was drunk with the blood of God’s holy people, the blood of those who bore testimony to Jesus."
~Revelation 17:3-6

The "woman" pictured with immense wealth (and non threatening) could depict an the supranational Debt Money Monopoly Cartel.

The "beast" could be the government system.

The woman is depicted as riding the beast because the woman actually controls the beast system.

As most people are aware, if you don' receive the "mark" of the beast on your hand (work on behalf of the beast system) or on your head (programmed to think like the beast system) then you will not be able to make a good living because the Debt Money Monopoly Cartel "woman" riding the beast won't direct their debt money in the direction of people who oppose their system.

If you want to know how this works, watch "Genius on Hold" - available on Netflix.

Genius on Hold Trailer

This man wouldn't accept the JP Morgan Interest financed mark on his "forehead" or his "hand" and he could not "buy or sell."

This is simply a premonition of what is beiing orchestrated...  as the outstanding debt soaks up actual cash and dries it up, only the most aggress woman riding beast system sycophants will have jobs that pay debt money...  everyone one won't be able to "buy or sell."

I'm not here to say whether that this figurative depiction is special revelation or blind luck, but it fits together reasonably well.

All Risk No Reward's picture


1. Create massive debt bubble through massive fraud...  protected from government interference because, well, they finance the government and its officials and they don't finance people to mess with their agenda.

2. Once the Main Street Ponzi pops (already done - Main Street has beent toast since 2008 never to come back), use government force, fraud and coercion to provide monetary wealth to Debt Money Monopoly Cartel interests while offloading the debt of those interests to the general public via the Federal Reserve intermediary.  In addition, simply loan trillions into existence from the ether, give the proceeds to The Cartel and leave the inextinguishable debts to the Muppetry.

3. Once #1 and #2 have run their course (doesn't it feel close...  any moment?), create a correlated pretext in order to blame the eventual collapse so that the Muppetry doesn't blame the root cause - the fraudulent Debt Money Ponzi system.  Putin has been set up as the fall guy for Europe.  "Sanctions" (based on declarations of guilt WITH NO SUBSTANTIAL EVIDENCE!) are already being blamed for Europe's economic troubles.  They may not limit the fall guy to Putin - we'll just have to watch and see what else these criminal orchestrate.

4. Seize the planet Earth's physical assets from debtors - AND GOVERNMENT MAKES SURE WE ARE ALL DEBTORS.  The private mega corproations will make claims ON ALL OUR ASSETS.  Now you know the reason they are setting up a police state and beta testing it.  If you don't go along with this criminal Debt Money Tyranny System in your mind and with the work of your hand, THERE WILL BE NO MONEY FOR YOU TO BUY OR SELL.

It is so elementary.  Hyperinflating to ruin trillions in looted money and trillions in debt paper to bail out people forced into fraudulent debt MAKES NO SENSE.

That's why they pay "magnetic personalities" to trumpet such nonsense...

The Muppetry simply repeats what they hear and feels smart if it sounds "oppositional."

"The best way to control the opposition is to lead it."
~Vladimir Lenin

"The super best way to control the opposition is to finance it."
~All Risk No Reward

Anyone waiting on the bankster to bail out their debt when the banksters can seize their physical assets by bankrupting the economy is naive "to the max."

The people running the world are doing so because they are simply much, much, much more intelligent than even the above average citizen.

From Sun Tzu, Art of War...

"Pretend inferiority and encourage his arrogance."

"Hold out baits to entice the enemy. Feign disorder, and crush him."

ejmoosa's picture

Funny that I feel that most of the government employees do not deserve their exorbinant pensions either.  And I am not part of the ruling elite.

BuddyEffed's picture

Ramping the stock market has always been a goal, to hide the weakness in the social structures, and let the 1% cash out even more into real assets while on the surface things seemed normal.  Think back to Bush and his attempt to put the Social Security funds into the stock market.  If that had been successful, it would have hidden the 2008 weakness for another 6 months or a year or so, allowing stock options and such to keep growing and business as usual to be the perceived norm. 

Oldwood's picture

What is it that people refuse to understand of the principle that a crisis is too good to waste? If we look at what we are experiencing, all of it is the result of some response to a ...crisis. A market collapse is just another opportunity and it is being delayed for one reason, increased advantage...and we all damn well know it. ..even those who are making a living or have their savings invested in this market and secretly (or not) hopes it will continue on indefinitely. This is but a grand scale pump and dump, with the wall street folks  lined up to pick up the pieces, with government help and endorsement of course, even if they are blamed. Remember the trash talking banks received after the collapse, yet they "recovered" faster than anyone, and with government direction. Dominoes placed for the best effect.

Buck Johnson's picture

He's correct, the bubble is to big to pop.  So what the fed aka the people in power are doing is plundering as much as they can and getting it out either overseas or in some asset so when they have to pop it or it pops because of something they don't see (black swan event).  Their assets will somewhat be safe but the country will be on fire.  Can you imagine if the markets crash 50% or more this time, it won't come back for decades because this time it will take the dollar with it.  And here's another thing to think about, What happens when Social Security checks and other checks either are cut or bounce?  We are going to have a ver very bad depression and it possibly will change what the US as a country will be.  Essentially breaking up the country.

Greenskeeper_Carl's picture

Yep, Goldman, JPM, and others 'in the know' have found their bag holders, and it is the average persons pension fund, who likely have no idea. If you are expecting any kind of pension in this country, you are probably a big holder of many of the most overvalued stocks in the US, rather you know it or not.

what's that smell's picture

the fed IS the stock market, the buyer of last resort, the source of phantom bids below the market and asks above it, co-located and cocked-and-loaded with buy programs to wag the e-mini's tail.

bear market? somewhere there's a zoo with unicorns and fairies and honest men and bear markets....

but in this universe, there's an organization that can print money out of thin air.

skidsmango1's picture

...sounds familiar to '07.  The market can't go down...and then it does.

Squid-puppets a-go-go's picture

ok so lets assume the Fed refuses to let the stockmarket crash. But what if the those who receive the QE through their merchant banks decide from their lifeboats that the collapse is necessary , that they need the flames to clear burn the economy before their phoenix projects can take root for the next generations of the oligarchy

The Fed, in the end, is but one tentacle of the illuminati

JR's picture

some 50% of all US pension fund assets are invested in stocks and only 20% in Treasurys. This compares to less than 10% for Japan…

These pensions are trading in the stock market and holding on, yes, but it’s a trap. 

In the 1940s, if my recollection of history is accurate, pension funds could invest no more than 6% in the stock market; it was considered gambling and, therefore, of too high risk for such funds. It could be said that the Fed deliberately has put the future of ordinary Americans at high risk, even savers, and one has to ask, Why? Former Secretary of the Treasury and Goldman Sachs/Citigroup mogul, Robert Rubin, also prodded President Clinton to cut a deal with Newt Gingrich to partially privatize Social Security funds and put them at them at the same high risk as IRA funds by allowing SS retirement contributions to be invested in private assets, such as stocks. Luckily, the Monica Lewinsky scandal put that on the back burner or this flight of millions of new amateur investors into the market would be like shooting ducks for the Wall Street snipers.

In addition, pensions now are the primary investors in private equity funds in terms of capital invested.

Bronwyn Bailey, Ph.D., wrote in an April 8, 2013 paper:

“Private equity funds have existed since the 1940s, and the industry mainly raised capital from individual investors until 1979 when the U.S. Department of Labor clarified the “prudent man rule”.6 

"This clarification allowed corporate pension funds to invest in a variety of investment products beyond bonds and stocks of very large companies. Public pensions, such as the Oregon Investment Council, followed this guidance and began investing in private equity funds in the early 1980s.

"Since the 1980s, pensions’ investment in private equity funds has grown. According to Preqin, a provider of data on the private equity industry, pension funds have been the largest contributor of capital in private equity investments during 2001-2011. Figure 1 shows that pension funds make up 43%of capital invested, of which public pension funds comprise almost 30%. In addition, endowments and foundations contributed 19% of capital invested in private equity.”

6 As part of the Employee Retirement Income Security Act (ERISA), the prudent man rule dictated federal standards for investing by pension funds. The original passage stipulated that pension funds were prohibited from holding certain risky investments, including investments in privately held companies. The 1979 clarification allowed for a measurement of risk at the aggregate portfolio level, rather than by individual investments. --Source: 44 Fe. Reg. 37,222 (June 26, 1979. 


Ayr Rand's picture

If the Fed fails to cause wage inflation greater than CPI, which is the only thing that can stabilize the financial system, then they (and the Dems and Reps) will look upon the 1970s with great fondness. A complete change of management will be the absolute best case for them as the misery index will exceed by far what was seen in the 1970s. QE, while a great boon to those of us in a position to take advantage of it, was completely useless in combatting the actual problems-- like painting over rust. 

RafterManFMJ's picture

Luckily your government has adopted policies that lead to wage inflation, such as.

1. Reducing the number of jobs available through massive outsourcing and regulatory over reach.
2. Encouraging women via both propaganda and policy to enter the workforce.
3. Continuing and expanding work visa programs.
4. Allowing the importation of tens of millions of new, unskilled and uneducated immigrants.
5. Byzantine corporate tax laws where your effective tax rate is directly proportional to corporate size and number of lobbyists.
6. Raising the minimum wage, which provides organic job growth.
7. Foisting 0blam0 care on business, which will no doubt increase hiring.

Your government is truly doing the best it can for it's people. I hope this post has made that clear.

All Risk No Reward's picture

Do you think the FED would keep its trap shut about offshoring millions of jobs to slave labor camps in authoritarian countries around the world if they were trying to induce wage inflation?

People, simply use your eyes and view THAT WHICH ACTUALLY EXISTS without letting bias get in the way.

Eyjafjallajökull's picture

Combine the 50% decrease in retirement funds' numeric value with the loss of reserve currency status, resulting in at least half of the dollar's purchasing power disappearing and you may see, why for the BRICS it's just a waiting game.

In this lite it's somewhat awkward to read Stratford's Friedman's underlining of Russia's economic demise every single time he mentions the country - like a self-reassurance mantra of an ostrich.

rbg81's picture

So, only 0.5% of the working population has pensions?  Or 401Ks (which are invested in stocks too)?  I don't think so Tim.  Stock ownership is very widespread.

Basically, the politicians will shit-their-pants if people are allowed to feel the "sharp pain" of a crash or a depression--even it it is short-lived and ultimately cleansing & healthy. Instead, they doom everyone to a dull throbbing pain that gets progressively worse over time.

The biggest sign that the West has become Socialist is that we won't let the Markets function naturally--so we don't let big companies or people (social safety net) fail.  

The real question is:  is this sustainable?  In the past, my answer would have been no.  However, technology and automation are gradually making the production of goods & some services without labor a reality.  So, increasingly, there will be people who literally cannot be employed in the traditional sense, but will need to be fed, housed, clothed and entertained.  Thus the Powers-that-Be have concluded Socialism is the way to go to make this happen with minimal unrest.

Anusocracy's picture

Except that the Powers-that-Be started on the socialist path at least a hundred years ago.

giovanni_f's picture

the sheer existence of the likes of koodloff means there are deep, deep problems. He's a symptom.

mjcOH1's picture

"So why can't, or rather won't, the Fed let the bubble market collapse once again? Simple - as the following chart shows, the illusion of wealth is now most critical when preserving the myth of the welfare state: some 50% of all US pension fund assets are invested in stocks and only 20% in Treasurys."

You look at those statistics as a reason why the fed won't let it crash.
I look at them as a reason why the Fed will force a crash.

There be FRNs in them thar hills, and they're not all yet herded into treasuries.

elephant's picture

During the first years of this 5+ year bull market, ZH kept warning us and giving us reasons to show us the market was on the verge of collapse.  Now they are telling us it can't happen.  Hmmm...

Ayr Rand's picture

Not really. They are simply explaining that the Fed is obliged to keep the S&P 500 increasing for as long as possible, something that has been obvious to many of us for some time (though ZH is providing only one of several compelling reasons). There is a point at which the markets will crash, and the more the Fed props them up the more completely they will crash, at least in terms relative to GDP. The Fed needs to stabilize the system, which requires a massive reduction in debt load relative to median wages. The Fed has been encouraging (or at least allowing) the opposite by reducing interest rates. 

debtor of last resort's picture

S&P is just another round of bread and circusses. Until the lions escape from their cages.

That is what ZH is telling you.

SDShack's picture

There is a reason why MyRA was conceived. The only questions to be answered are how and when will MyRA be forced on the masses? How... is most likely answered the same way TARP was strong-armed into passing in 2008. So really, the only queston left to answer is "when?"

joe6px's picture

Is it so hard to believe that MyRA will replace SocSec?  Let SocSec crash, with the rest of the economy, then out of the ashes comes a new and improved ponzi.  An overhaul of an outdated financial farce.  Put your money in #US!  Surely this .gov won't pass up the chance to latch onto your earnings with something that is sooo good for you!  There are those who may be able to navigate this farce for what it is, for the rest of us...  the crash is coming, how YOU crash is up to you.

BOPOH's picture

End fractional reserve banking system.

barre-de-rire's picture

except saying it, what 's ur move to do it actually...? hm ?


ho..i see...

yogibear's picture

Go better than that. The people in the US need to throw Bernanke in jail for lying when he stated that he would not monetize debt. All should be tried for treason for benefiting a few at the expense of many. These PhDs should be tried as criminals.

Carpenter1's picture

Every day I walk along a beautiful seawall near my home. It's filled with retired, pension receiving folk who haven't a care in the world. Part of me admires them, wishes I was them, another part hates them for being lucky enough to be born in the generation they were, and the last 3rd of me laughs heartily at them because when the SHTF, they won't know what hit 'em.



economics9698's picture

Don't let them know you stack, shhhhhh.

Squid-puppets a-go-go's picture

let anyone and everyone know you stack, and that they should do the same. Its good for your soul, and the added demand will hasten the day when the tower of Babel crumbles

EBT excepted's picture

they look at me like I have two heads...


"they said you was hung"...

..."and they was right"

Shad_ow's picture

You are right but it isn't just retired people who do not know what is going to hit us.  Young familes are headed by men and women who go to their jobs gladly everyday of the week.  On the weekends they play and laugh.  Try talking the future of our country with them and all you get is anger that you dare to disturb their pretty lives. 


Oldwood's picture

Truth is kryptonite to Delusionists.

Eyeroller's picture

Truth is hated by Delusionists.

Try making any point raised on ZH on the lamestream sites and you'll get excoriated.

Canoe Driver's picture

You are right, Shad_ow, that they don't want to hear it, but they go, generally speaking, quite miserably to their jobs every day, and on the weekends they stress about money they don't have, charge too much to their credit cards, and otherwise engage in hot-tempered family dysfunction. There is indeed a lot of misery out there.

Lanka's picture

Generally speaking its preferable to be young, rather than old.