Tuesday, August 09, 2011

Fed: More Of Same; Much More!

Bloomberg on today's Federal Reserve meeting:
The Federal Reserve pledged for the first time to keep its benchmark interest rate at a record low at least through mid-2013 to revive a recovery that’s “considerably slower” than anticipated.
Naturally the stock market bounced substantially -- so would you if you had been falling for over a week straight -- but if one is tempted to think that today's bounce is due to relief of fears that the Federal Reserve was going to raise interest rates, we politely submit that one would be misled.

The Federal Reserve has done nothing for the past 3 years except subsidize a risk free bond trade for banks -- a transfer, if you will, of presumed future tax revenues from Treasury, Federal to treasuries, bank. Said treasuries are sitting on nearly 2 trillion dollars, some portion of which is attributable to the Fed's reaching into the pockets of children yet unborn. "A dollar today is worth more than a dollar a year from now" in an inflationary environment, and this apparently is part of the calculus that rationalizes this trade.

As notable for its audacity as it is, this feat has done nothing to stabilize prices, support or strengthen the value of the dollar, reduce unemployment or cause GDP growth; nothing to restore confidence in our markets either at home or abroad; nothing to overcome the blatantly anti-business bias of the administration -- nor was it meant to, nor would anyone expect it to. It was designed to keep corporations -- especially a few key banks -- from failing, on the pretext that they are "too big to", because they are the world's financial system.

Returning, then, to today's bounce -- we suspect that the takeaway from today's market action amongst the world's financial administrati will be that the Fed "has done it again" -- with accompanying sentiments including admiration. But the alleged "trillions of euros" of bond buying done by the Eurocrats a few days ago did nothing to keep the FTSE (for example) from losing 5+% the very evening that market-saving buying was supposed to be taking place; why would a few words from the Fed amounting to "nothing's changed here" change the game?

It didn't. The promised continued devaluation of the dollar by the Fed simply drove it down in currency markets and exaggerated an overdue bounce in the value of dollar-denominated assets like the stock market. But there is no reason to believe this indicates "health" on the part of the market that casts a vote on the health of the economy. The US is still in a state of bureaucratic denial about its budget deficit, it still refuses to stop spending trillions of dollars it does not have; its largest trading partner is still an unrepentant violator of human rights in the midst of a bubble of unprecedented magnitude; asset values have shrunken substantially globally; a generation has lost faith in its purported leaders, and London has gone up in flames. We take this state of things to be symptomatic of problems that go to the soul of a people, if that analogy can be used -- something that a government bank is ill-equipped to repair.

Our world is indeed a different place than it was two weeks ago, but the results of the Fed meeting today are as "status quo" as can be and then some. In fact, they appear a desperate attempt to preserve the status quo. On the face of it, they look very much like the face of Fed Chairman Ben Bernanke: unflappable, unruffled and inanimate. Unconcerned. Disengaged. Preoccupied. Distant. Out-of-touch. Very much, in fact, like the face of the Administration of the President. Like zombies, really. The living dead.

More of the same means...more of the same: the emasculation of the great economic engine we once were. The law of entropy has its own leverage, and decline, if it isn't resisted, gains momentum.


Post a Comment

<< Home