The Fed’s “choice” is as illusory as the “wealth” the Fed has created with its perfection of moral hazard.
The belief that the Federal Reserve possesses god-like powers and knowledge would be funny if it wasn’t so deeply awful, for the Fed doesn’t even have a plan, much less knowledge. All the Fed has is an incoherent assortment of profitable, panic-driven “conserves” it patched together in the 2008-2009 Global Financial Meltdown that it had made inevitable.
The irony is the only thing that will still be rich when the whole rotten, corrupt, vulnerable financial system of illusory stability collapses in a heap of runaway instability. The paradox is that the Fed’s leaky grab-bag of expedient “conserves” was not designed to ensure systemic stability, though that was the PR cover story.
The Fed’s dripping grab-bag of profitable “saves” had only one function: save the fat-cats, skimmers, fraudsters, scammers and embezzlers who had gotten rich off the Fed’s masked transfer of wealth: the purpose of all the 2008-2009 extremes was not to enforce the discipline required to truly stabilize the financial system; the purpose was to raise ethical risk— the separation of threat from the effects of danger– to unprecedented heights, backstopping every skimmer, scammer, scammer and embezzler from well-deserved losses as the entire pyramid of fraud collapsed under its own massive weight of risky bets gone bad.
To conserve its cronies from the devastating losses that need to have been taken by those making the bets, the Fed instituted one profitable “save” after another: backstopped international banks with $16 trillion, dropped rate of interest to absolutely no, removed genuine reporting by ending mark-to-market prices of threat, flooded the financial system with free cash for investors, all designed to signal that the Fed will never ever let its cronies suffer the repercussions of their risky bets, i.e. the perfection of ethical danger.
The Fed’s perfection of ethical hazard has actually now infected the whole market and people: it’s not simply the skimmers, fraudsters, scammers and embezzlers who are supremely confident the Fed will never ever enable them to experience the repercussions (i.e. squashing losses) of super-risky bets going bad; the entire American populace now shares that supreme self-confidence that a person can put all of one’s life cost savings on any roulette number (GME or AMC option, Doge cryptocurrency, and so on) and the Fed will guarantee every live roulette number is a winner– a big winner.
As an outcome of the Fed’s perfection of moral danger, systemic danger has blown up to unmatched levels. As threat can not be snuffed out, it can just be transferred, the Fed has moved geometrically expanding danger to the system itself.
The Fed’s fig-leaf for this vast transfer of wealth to the top layer of gambler sociopaths is the wealth effect: if the Fed triples the worth of stocks, then all that new wealth will encourage people to borrow and invest feeely, keeping the economy from the cleaning of a recessionary contraction of dangerous credit.
The wealth effect was simply another fraud, as the concentration of wealth in America is so severe that the tripling of equities only benefited the already-wealthy. All the Fed accomplished with its grab-bag of practical “saves” was brand-new and destabilizing extremes of wealth-income inequality: the profits of the top 0.1% exploded greater 15-fold while the earnings of the bottom 90% stagnated; essentially all the gains from the Fed’s practical grab-bag of consequence-free payouts accumulated to the top 0.1% (see charts below).
Having actually engineered the best transfer of wealth and threat in human history by means of its practical “conserves” of those who shouldn’t have been saved, the Fed is now trapped: if it stops pumping up the stock exchange, and enables repercussion to re-connect with danger, then the losses will be catastrophic for everybody who blindly believed that the Fed’s powers to reduce danger and guarantee every roulette number is a big winner was god-like.
But if they keep inflating the stock market and signaling “no one will ever lose a penny buying stocks” (i.e. the perfection of ethical hazard), then the entire system’s stability is progressively at danger. (Not to point out the capacity for rip-your-face-off inflation to become ingrained in expectations.)
By making practical “saves” long-term policy, the Fed has actually guaranteed the destabilization of the entire monetary system. If you promise no quantity of danger will ever provide any repercussion other than “every roulette number will be a big winner,” then risk quickly approaches near-infinite heights. If the Fed attempts to backstop and bail out every organization and punter who believed in the Fed’s power to snuff out risk, that expedient “conserve” will collapse the system.
Here’s the Fed’s choice: continue making practical “saves” long-term policy, the system collapses. Withdraw the warranty that danger will never ever have any consequences, and the system collapses. The Fed’s “choice” is as illusory as the “wealth” the Fed has created with its excellence of moral hazard– an excellence that could only end in the collapse of the entire fraudulent fantasy of risk-free gains forever.
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