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Markets That Live by the Fed, Die by the Fed

September 17, 2019

The "everything bubble" is not permanent.

All eyes are again on the Federal Reserve, as everyone understands that the Fed is the market-- the stock market, the bond market, the art market, the housing market, etc. All markets have been driven higher by one force: central bank money creation and distribution to the financial sector of financiers and corporations, the richest of the rich.

What few seem to grasp (because they're paid not to?) is the Fed is powerless over what actually matters in a healthy economy:

1. The Fed is powerless to create productive, profitable ventures for capital to invest in. Productivity has gone nowhere in the Fed's reign while speculative profits leveraged by the Fed's free money for financiers have soared.

2. The Fed is powerless to raise wages. Despite ginned-up claims that wages are finally rising 3% a year after a decade of stagnation, wages are still losing purchasing power once real-world inflation is factored in.

3. The Fed cannot force creditworthy households and enterprises to borrow more money, nor can they stop banks from lending to the only people who want to borrow more money, those who are credit risks, i.e. borrowers who will default at the first spot of bother.

4. The Fed is powerless to stop the New Gilded Age consequences of their policies via The Cantillon Effect: it's not just how the money is created, but how it's distributed. Those who get the Fed's nearly free money can use it to buy productive assets and pursue speculations such as stock buy-backs, while everyone else who didn't get a single dollar of the Fed's trillions experiences a loss of purchasing power as the Fed's new money expands the money supply without actually expanding the real economy.

The only power the Fed has is to incentivize profiteering via stock buy-backs and speculations of the super-wealthy--the power, in other words, to create a New Gilded Age of obscene wealth inequality.

The Fed's New Gilded Age is generating political blowback, and eventually the masses will awaken to the fact that the Fed is the enemy of the people because it is the sole enabler of the unproductive, parasitic, predatory corporate/insider class that's skimmed something like 87% of all the "wealth" "created" by the Fed's policies.

The Fed has created an economy in which capital has been stripped of low-risk yield. All capital must become gambling chips in the casino to earn a return, but gambling is intrinsically risky, and the asymmetry between the risk--rising--and the return--increasingly paltry--is setting the markets up for a fall the Fed is powerless to stop, and a political blowback to the Fed's New Gilded Age that is it equally powerless to stop.

Markets that live by the Fed also die by the Fed. The Fed's abject, pathetic powerlessness over what actually matters will be revealed in the years ahead, and everyone will look back on the decades in which the Fed was viewed as god-like as a form of mass delusion.

The "everything bubble" is not permanent. Gambling is risky, and the Fed has rigged the world's larget casino to benefit its banking / financier / corporate cronies. But bubbles burst for reasons outside the control of the Fed, a reality that's about to become undeniable.




Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic ($6.95 ebook, $12 print, $13.08 audiobook): Read the first section for free in PDF format.


My new mystery The Adventures of the Consulting Philosopher: The Disappearance of Drake is a ridiculously affordable $1.29 (Kindle) or $8.95 (print); read the first chapters for free (PDF)

My book Money and Work Unchained is now $6.95 for the Kindle ebook and $15 for the print edition. Read the first section for free in PDF format.


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(Kindle ebook $6.95, print $12, $13.08 audiobook)

America teeters on the precipice: our government is now captive to special interests and big money, twin cancers that threaten our democracy. This accelerating crisis is exacerbated by a toxic social media-fueled tribalism that has replaced “what do you think?” with “which side are you on?”

Our crisis isn’t just political—it’s structural: as the pace of change explodes from gradual to non-linear, the organizations that dominate our economy—centralized corporations and government—become destined to fail. We see this failure in both the soaring inequality that has hollowed out the American Dream as well as in the rising tide of social and political disunity.

To prevent the fall of our democratic republic, we must transform our economy and society from the ground up. As we enter a new era of rapid, unprecedented tumult, it is we citizens who will need to save our democracy. For our political and financial elites will cling to their centralized power, doing more of what’s failed, even as civil society unravels.

All is not lost--yet. Our way forward starts with understanding the fatal flaws of our brittle, self-serving status quo and embracing this basic truth: better options are available if we’re willing to explore.

To pathfind our way to a better destiny, we must create new localized structures optimized for resilience and adaptability—a flexible, decentralized, sustainable, democratic, opportunity-for-all nation.

Read the first section for free in PDF format.

Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic (ebook $6.95, print $12)



Recent entries:

Markets That Live by the Fed, Die by the Fed September 17, 2019

The Black Swan Is a Drone September 16, 2019

What a Relief that the U.S. and Global Economies Are Booming September 13, 2019

The Inevitable Bursting of Our Bubble Economy September 11, 2019

How Deep Is the Rot in America's Institutions? September 9, 2019

These Are Not Signs of a Healthy Market September 6, 2019

Will Everything Change in 2020-2025 or Will Nothing Change? September 4, 2019

Labor Day Reflections on Retirement and Working for 49 Years September 1, 2019


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SPECIAL APPEAL TO READERS OF OFTWOMINDS from longtime correspondent Cheryl A.:

I don't recall exactly how I discovered Of Two Minds in late 2005, but it is hard to express how grateful I am that I did. As a result of the insight I have gained from the information Charles has shared over these past 9 years, I have been able to navigate this turbulent period much more successfully than most of my acquaintances. I'm sure that those of you who visit OTM with any regularity have similarly benefitted in numerous ways.

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Extra-Special Bonus Aphorisms:

"There is no security on this earth; there is only opportunity."
(Douglas MacArthur)

"We are what we repeatedly do." (Aristotle)

"Do the thing and you shall have the power." (Ralph Waldo Emerson)

"Any intelligent fool can make things bigger, more complex, and more violent. It takes a touch of genius and a lot of courage to move in the opposite direction." (E.F. Schumacher, via Tom R.)

"He who will not risk cannot win." (John Paul Jones)

"When we drink coffee, ideas march in like the army." (Honore de Balzac)

"Progress is not possible without deviation." (Frank Zappa, via Richard Metzger)

"Victory favors those who take pains." (amat victoria curam)

"The man who has a garden and a library has everything." (Cicero, via Lee Bentley)

"A healthy homecooked family meal and a home garden are revolutionary acts." (CHS)

"Do you know what amazes me more than anything else? The impotence of force to organize anything." (Napoleon Bonaparte)

"The way of the Tao is reversal" Or "Reversal is the movement of Tao." (Lao Tzu)

"Chance favours the prepared mind." (Louis Pasteur)

"Success consists of going from failure to failure without loss of enthusiasm." (Winston Churchill)

"Where there is ruin, there is hope for treasures." (Rumi)

"The realm of gratitude is boundless." (CHS, 11/25/15)

"History doesn't have a reverse gear." (CHS, 12/22/15)

Smith's Law of Conservation of Risk: Every sustained action has more than one consequence. Some consequences will appear positive for a time before revealing their destructive nature. Some consequences will be intended, some will not. Some will be foreseeable, some will not. Some will be controllable, some will not. Those that are unforeseen and uncontrollable will trigger waves of other unforeseen and uncontrollable consequences. (July 8, 2014)(thanks to Lew G. for retitling the idea.)

Smith's Neofeudalism Principle #1: If the citizenry cannot replace a kleptocratic authoritarian government and/or limit the power of the financial Aristocracy at the ballot box, the nation is a democracy in name only.

The Smith Corollary to Metcalfe's Law (The Network Effect): the value of the network is created not just by the number of connected devices/users but by the value of the information and knowledge shared by users in sub-networks and in the entire network. (CHS, 4/6/16)

My Credo of Liberation: I no longer care if the power centers of our society--the distant, fortified castles of our financial feudal system--are changed by my actions, for I am liberated by the act of resistance. I am no longer complicit in perpetuating fraudulent feudalism and the pathology of concentrated power. I no longer covet signifiers of membership in the Upper Caste that serves the plutocracy. I am liberated from self-destructive consumerist-State financialization and the delusion that debt servitude and obedience to sociopathological Elites serve my self-interests. (Thank you, Klaus-Peter L., for reminding me)

"We've become a culture of excuses rather than solutions: solutions always require sustained effort and discipline." (CHS 4/9/16)

"Fraud as a way of life caters an extravagant banquet of consequences." (CHS 4/14/16)

"Creativity = problem solving = value creation." (CHS 6/4/16)

"Truth is powerful because it is the core dynamic of solving problems." (CHS 7/21/17)

"We live in a system of human emotions that masquerades as a science (economics)." (CHS 1/1/18)

"Always remember, your focus determines your reality." (George Lucas)

"Diversity is for poor people. Sameness is for the successful." (GFB)

"When power dissipates suddenly, it dissipates completely." (CHS 7/14/19)

"Disobedience is the true foundation of liberty. The obedient must be slaves." (Henry David Thoreau)

"Markets cannot price in the value of non-monetized natural assets such as diverse ecosystems." (CHS 7/14/19)

click here for more Extra-Special Bonus Aphorisms.





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