The Federal Reserve has effectively killed the capital markets.
This statement may seem rather extreme. But to understand our meaning, you first have to assess the purpose of the capital markets.
The purpose of the capital markets is to connect capital with business to create value. Investors want returns, businesses want growth. The capital markets are meant to be the mechanism through which these two groups interact. And the markets, representing the collective wisdom of investors, dictate the risk of each transaction.
So what has the Fed done?
Long before the 2008 Crisis hit, the Fed was already actively screwing up the markets and capitalism by stepping in to hold the markets up anytime a crisis developed. Long-Term Capital Management, Chrysler, the Asian Crisis, etc.… the list goes on and on.
We are not suggesting that intervention on some level is not warranted. However, as anyone with even a remote understanding of human nature knows, if you continually enable certain behaviors, they will only increase in intensity and frequency.
Indeed, the unintended consequence of the Fed’s actions was that an entire generation of investors came to believe that anytime something terrible emerged in the Financial System, the Fed would step in. Faith in capitalism and the markets was replaced by faith in the Fed.
The 2008 crisis can be directly linked to this thinking. Investment banks made trillions of dollars in bad bets leading up to the Crash. They would not have done this if they had not been
A) allowed to increase leverage levels (a failure on the part of regulators of which the Fed is one)
B) under the impression that the Fed would help them should the proverbial stuff ever hit the fan.
Then 2008 happens and the Fed becomes involved in ways never before dreamt of. Since 2008, the Fed has actively pumped money into the financial system over 90% of the time.
Reconsider that last sentence. Going back to 2008, if you go on a month-by-month basis, the Fed has been putting money into the system over 90% of the time… for FIVE YEARS. This adds up to nearly $4 trillion.
From a secondary perspective, the Fed has become so involved in the markets that the single biggest focus for investor research today is what the Fed intends to do or what it means.
Earnings, balance sheets, value… all of that stuff is secondary to the utterances of a group of academics most of whom have never run a business. That’s how screwed up the system has become, courtesy of the Fed’s incessant intervening in the markets.
Does the Fed actually have a clue what it’s doing? Its forecasting and modeling track record doesn’t suggest it. You have to truly dig deep to find anything in the post-Volcker Fed era in which the Feds accurately predicted anything of significance.
After all, if the Fed is wrong about something, what is the consequence? No one at the Fed gets fired. No one gets demoted. The Fed simply intervenes again and the world moves on.
If you’ve spent any time in the corporate world, you’ll recognize that a business’s culture can ultimately be traced back to leadership and old habits.
The Fed is, for all intensive purposes, the leading monetary authority for the capital markets. And the Fed is anything but a capitalist institution. It doesn’t operate according to the basic tenants of capitalism.
Just look at Ben Bernanke. He was wrong about everything leading up to the 2008 collapse. On top of this, his policies in the post-2008 era:
1) Punished millions of Americans who rely on savings and interest rates for income.
2) Sparked widespread inflation particularly in food prices, which fomented civil unrest (the Arab Spring), and even starvation.
3) Provided insider information behind closed doors to select groups of hedge funds and institutions well before the making public statements about policy.
Was he fired? Nope. He earned roughly $200K per year as Fed Chairman. Since retiring he now makes $250,000 per speaking engagement. His failure as Fed Chairman (easily the reason why he chose to stay only two terms) actually benefitted him tremendously.
The Fed and its policies have warped the culture of capitalism to the point that we now exist in a Centrally-Planned nightmare in which a handful of academics influence the economy and world reserve currency with every speech and verbal statement.
Worst of all, if they’re wrong, none of them have anything to lose. The losers are the 7+ billion people in the world who end up losing money, starving, or working twice as hard to make ends meet as a result of the Fed’s policies.
The Fed has killed the capital markets.
This concludes this article. If you’re looking for the means of protecting your portfolio from the coming collapse, you can pick up a FREE investment report titled Protect Your Portfolio at http://phoenixcapitalmarketing.com/special-reports.html.
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Phoenix Capital Research