“What more can the Federal Reserve do?” is a question that keeps cropping up, especially in the last few days. They’ve already purchased so many bonds that their balance sheet is now heavier than the entire mass of the solar system, and there are no more bonds to “twist”, meaning, they cannot exchange any more short term bonds for long term bonds, because they have no more short term bonds to exchange.
The only thing the Fed has a mandate from Congress to actually do is buy or sell bonds. If they buy bonds, they buy them with money they conjure out of nothing (read money they steal from you and me) and if they sell bonds, the obliterate the money they earn from those bonds out of existence. They are like a giant monstrous liquidity black hole that magically spits out and sucks in cash, in and out of existence.
But as many dollars as the Fed can vomit forth into the economy, there seems to be no stopping the recession. What you have here is a world that doesn’t know how to produce anymore because everyone is stealing money from everyone else. When money is stolen, wealth is not produced. Only transferred, and each country is trying to steal more and more money from every other country by borrowing without any intention of paying back, and inflating GDP numbers by printing currency. It’s like a bankrupt college kid trying to show his parents that he’s making more money because he’s borrowing more from his friends and having his powerful bully go around beating people up for their lunch money and calling it “stimulus”. Except, in our case presently, we the people are the parents, the powerful bully is the Fed, and the bankrupt kid is the global economy.
Atlas Shrugged is not a very well written book. Fun to read, but way too long, droned on forever. Ayn Rand was never known for her writing skill, but for her ideas. What happened in the book was this: as the government lost more and more control, they started issuing stricter and stricter economic edicts (regulations) to keep things from dying. At one point, the government issued an edict that no company or person was allowed to produce any more or less than he is now, so GDP would stay exactly the same and nothing would change. This is pretty much what Constantine did when he took over the Roman Empire when he forbade sons from pursuing any occupation different from their fathers. So there is precedent for governments to do such things.
The danger now is that while Keynesians are crying that the Fed can’t do anything more, they may just be tempted to tell the government to give the Fed more power, and, say, buy stocks straight up and inflate the stock market directly instead of indirectly by buying bonds and forcing money into equities by saturating the bond market as they are doing now with QE.
If God forbid that happens and the Fed gets even more power than it has now, then we are all going to suffer excruciatingly. A monetary black hole entering the stock market can do untold damage to everyone involved, and the entire capitalistic system as we know it will be in danger. I’m pretty gloomy on this blog, but the thought of the Fed being allowed to enter the market directly, quite frankly scares the daylights out of me.
After that, the government may, a la Atlas Shrugged, just issue an edict that no one is allowed to sell stocks at a loss anymore, thereby keeping prices inflated.
Regulations are already making it so unbelievably difficult for a company to go public and issue an IPO that only gargantuan companies can do so, at the point where they already have $100 billion market caps and there’s no point in buying them because they are already at their highs. (FACEBOOK FACEBOOK FACEBOOK) What stops the government from issuing a mandatory hiatus on selling stocks? They already issue bans on short-selling. The point of a company going public is not for a colossus to raise $100 billion for God’s sake. It’s so a small company can raise a few million to expand by offering shares to the public and hopefully grow and share the profits. But what do any of us know from real capitalism anymore. We’ve become the world of $100 billion IPO abortions and failed startups who can no longer attract capital because JPMorgan is sucking it all out of the economy.
Watch out for the cries for the Fed to be able to do more. These are the most dangerous of cries. The world is falling apart and people are terrified of any semblance of freedom. Very soon this planet is going to look like something out of an Ayn Rand horror story.
Who is Ron Paul?
I mean John Galt.