The Fed poisons everything, and I mean everything. From markets, the economy, and I will even go as far as politics. Sounds far fetched? Let me make my case below. But as much as the Fed poisons everything this crisis here again reveals a larger issue: The system is completely broken, it can’t sustain itself without the Fed’s ever more monumental interventions. These interventions are absolutely necessary or the system collapses under its own broken facade. And this conflict, a Fed poisoning the economy’s growth prospects on the one hand, and its needed presence and actions to keep the broken system afloat on the other, has the economy and society on a mission to circle a perpetual drain.
So how does the Fed poison everything?
Let’s start with the Fed actual process of working towards its stated mission: Full employment and price stability.
How does it do that? Well, for the last 20 years mainly by extremely low interest rates and balance sheet expansion sprinkled with an enormous amount of jawboning. The principle effect: Asset price inflation.
It’s not a side effect, it’s the true mission. The Fed has been managing the economy via asset prices even though Jay Powell again insisted on saying the Fed is not targeting asset prices.
This is a lie. And I can prove it with one chart. Cumulative $NYAD, the flow into stocks versus M1 money supply:
It was not until the Fed flooded markets with cheap money creating the housing bubble that the $NYAD equation changed dramatically, and it was not until the GFC that the Fed went full hog wild on M1 money supply that $NYAD went full vertical alongside of M1. TINA! There is no alternative. Forcing money into equities to manage the economy with a rising stock market.
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