Saturday , 14 December 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Will Stock Markets Continue to Out-perform Now That Fed Monetary Heroin Has Been Withdrawn?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 (theeconomiccollapseblog.com) 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.

*http://theeconomiccollapseblog.com/archives/from-this-day-forward-we-will-watch-how-the-stock-market-performs-without-the-feds-monetary-heroin (Copyright © 2014 The Economic Collapse)

If you liked this article then “Follow the munKNEE” & get each new post via

Related Articles:

1. There’s NO Way To Dodge the Bullet: We Must Continue to Leverage & Inflate – or Die! Here’s Why

Interest rates will not rise again in our lifetime. Why, you ask? Because the leverage in the system would collapse the very financial assets and governments which underpin the global financial systems. It is INFLATE or DIE and it provides the additional benefit of feeding insolvent welfare states and the socialist politicians to feed their “useful idiot” supporters. Today’s missive will put some meaning into that observation. Read More »

2. Is QE 4 Coming? Here Are 4 Reasons Why I Ask

It’s widely expected that at the end of this month, the Federal Reserve will end its third round of quantitative easing (that began in September of 2012)…[but] is there another round of QE coming? Here’s why I ask: Read More »

3. Don’t Fear End of QE or Beginning of Higher Interest Rates – Here’s Why

The Fed and the bond market are responding appropriately to declining risk aversion and a somewhat improved economic outlook. There is no reason to fear the end of QE or the beginning of higher short-term interest rates. Let me explain further. Read More »

4. Stock Market Crash Coming, Then More QE & Then Commodity Price Spikes

Unknowingly, with QE Infinity, Bernanke has put in motion a runaway move in the stock market that will end in some kind of crash this summer. The crash will cause Bernanke to double down on QE which will trigger a spike in commodity prices. Let me explain my rationale. Read More »

5. QE Could Drive S&P 500 UP 25% in 2013 & UP Another 28% in 2014 – Here’s Why

Ever since the Dow broke the 14,000 mark and the S&P broke the 1,500 mark, even in the face of a shrinking GDP print, a lot of investors and commentators have been anxious. Some are proclaiming a rocket ride to the moon as bond money now rotates into stocks….[while] others are ringing the warning bell that this may be the beginning of the end, and a correction is likely coming. I find it a bit surprising, however, that no one is talking of the single largest driver for stocks in the past 4 years – massive monetary base expansion by the Fed. (This article does just that and concludes that the S&P 500 could well see a year end number of 1872 (+25%) and, realistically, another 28% increase in 2014 to 2387 which would represent a 60% increase from today’s level.) Words: 600; Charts: 3 Read More »

6. The Paradox of QE: If It Is Successful the Federal Reserve Will Fail & Plunge U.S. Into New Fiscal and Political Crises

[There is a major downside to] quantitative easing; it isn’t free. There is a cost to the Fed’s policy and the bill will be past due when the economy recovers and interest rates rise. Congress will then realize that the Federal Reserve System is the biggest financial black hole in the history of mankind [and that] the tab may be big enough to blow the Federal budget and plunge Washington into a new fiscal and political crisis. Words: 870 Read More »

7. QE4: An Early Christmas Present For Most Investors – Here’s Why

One couldn’t imagine any better Christmas gift for hard assets and stocks than Ben Bernanke’s surprise introduction of QE4 right on the heels of QE3. Call the duo QE7. “QE7” promises to expand the monetary base far faster than the markets had been discounting [which is great for gold] and also raises the floor under stocks. I suspect we’ll close 2012 with a run at the highs, and possibly climb just short of 1,600 on the S&P 500 sometime in Q1. As for Treasury bonds, well, could this spell the end of the bond market? [Let’s look at the ramifications of QE4 more closely.] Words: 516 Read More »

8. QE4 Will Continue Until “The Cows Come Home & the Fat Lady Sings” But It Too Will Fail!

[The just announced] QE4 will see the Fed buying $85B per month in U.S. Tbonds and Fanny/Freddie bonds with newly printed dollars – essentially debasing the dollar by 1 $trillion per year. The cold reality, however, is that each time QE is launched we get less wealth-effect bang for the buck and more inflation and, IMO, by the time it’s switched off in mid-2014, we will have a real-world inflation rate of 5%+. (Words: 863; Charts: 2) Read More »

9. Commentary on QE3 Exclaims: “We Have Been Warned!”

QE3 looks like a desperate act to feed money to large banks, offload MBS toxic waste from their balance sheets, devalue the dollar against houses, commodities, and other currencies and create significant collateral damage in the form of consumer price inflation according to a number of respected economists and critical thinkers on the subject of QE3. [Let’s take a look at what they have to say.] Words: 1661 Read More »

10. QEunlimited is NOT Going to Save the U.S. Economy – Period!

With the pop from the USFed’s latest attempt at financial shock and awe already seeping from lackluster markets, and the teleprompter news networks losing steam over their promotion of the same, it is time to take a look back at the decisions made on 9/13/2012 and set the record straight on some things. Read More »

 

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.