Loading ...Dr. Bernanke was essentially telegraphing the Fed would not tolerate the consequences of weak securities markets – let alone a correction or bear market.
[no more downside for all financial assets–blue skies from now on]
https://www.youtube.com/watch?v=Djd1XfwDAQs
Credit Bubble Bulletin—Friday, June 25, 2021
Weekly Commentary: Mester on Financial Stability
The Fed had one last chance to rein in the Bubble. It announced its non-conventional policy “exit” plan in 2011, with the expectation of paring back some of its unprecedented balance sheet expansion. But instead of exiting, the Fed again doubled asset holdings over three years to $4.5 TN. And the policy evolution went beyond adding massive amounts of liquidity in a non-crisis environment. With essentially no fanfare, Bernanke sank deeper into activist policy quicksand in 2013: “If financial conditions were to tighten to the extent that they jeopardized the achievement of our inflation and employment objectives, then we would have to push back against that.”
Dr. Bernanke was essentially telegraphing the Fed would not tolerate the consequences of weak securities markets – let alone a correction or bear market. It was monumental. The Fed was no longer only backstopping the markets against crisis dynamics. Our central bank wanted loose financial conditions, and it was ready and willing to do whatever it takes to ensure inflating markets. Fed mandates could only be accomplished through robust securities markets. At that point, the Fed was managing financial conditions in name only. It orchestrated booming markets to accomplish its economic objectives.
It’s all been fairly predictable since then: escalating speculative excess, over-leveraging, Bubble Dynamics, and recurring market instability. And each bout of market turmoil ensured only more outlandish Fed market intervention: Powell’s “pivot,” the 2019 “insurance” stimulus in the face of booming stock markets and unemployment at multi-decade lows, and then the Monetary Fiasco unleashed in March 2020. The Fed’s balance sheet has about doubled in 15 months, while our central bank ventured into buying corporate bonds and ETFs. Importantly, it thoroughly convinced the marketplace that “whatever it takes” can be literally interpreted when it comes to sustaining Bubble markets. Manias were spawned in precarious “Terminal Phase Excess.”
Now what do they do? The Fed and global central bank community have inflated myriad historic Bubbles. They’ve irreparably distorted market prices and function. The upshot is momentous risk distortions throughout – with particular emphasis on unprecedented leveraged speculation, the derivatives complex and the ETF industry. The money market funds should be the least of the Fed’s concerns.
Dr. Bernanke was essentially telegraphing the Fed would not tolerate the consequences of weak securities markets – let alone a correction or bear market. It was monumental. The Fed was no longer only backstopping the markets against crisis dynamics. Our central bank wanted loose financial conditions, and it was ready and willing to do whatever it takes to ensure inflating markets. Fed mandates could only be accomplished through robust securities markets. At that point, the Fed was managing financial conditions in name only. It orchestrated booming markets to accomplish its economic objectives.
It’s all been fairly predictable since then: escalating speculative excess, over-leveraging, Bubble Dynamics, and recurring market instability. And each bout of market turmoil ensured only more outlandish Fed market intervention: Powell’s “pivot,” the 2019 “insurance” stimulus in the face of booming stock markets and unemployment at multi-decade lows, and then the Monetary Fiasco unleashed in March 2020. The Fed’s balance sheet has about doubled in 15 months, while our central bank ventured into buying corporate bonds and ETFs. Importantly, it thoroughly convinced the marketplace that “whatever it takes” can be literally interpreted when it comes to sustaining Bubble markets. Manias were spawned in precarious “Terminal Phase Excess.”
Now what do they do? The Fed and global central bank community have inflated myriad historic Bubbles. They’ve irreparably distorted market prices and function. The upshot is momentous risk distortions throughout – with particular emphasis on unprecedented leveraged speculation, the derivatives complex and the ETF industry. The money market funds should be the least of the Fed’s concerns.