{"id":1190688,"date":"2020-06-16T08:55:15","date_gmt":"2020-06-16T13:55:15","guid":{"rendered":"https:\/\/dailyreckoning.com\/?p=109426"},"modified":"2020-06-16T08:55:15","modified_gmt":"2020-06-16T13:55:15","slug":"goodbye-free-market","status":"publish","type":"post","link":"https:\/\/juniorminingnews.com\/?p=1190688","title":{"rendered":"Goodbye, Free Market"},"content":{"rendered":"

This post Goodbye, Free Market<\/a> appeared first on Daily Reckoning<\/a>.<\/p>\n

Fremdsch\u00e4men.<\/i><\/p>\n

Fremdsch\u00e4men is a noun of the German language. It translates this way:<\/p>\n

Embarrassment for those incapable of feeling embarrassment.<\/p>\n

Today we suffer embarrassment for Mr. Jerome Powell and his fellows of the Federal Reserve…<\/p>\n

For no action they take lowers their heads in shame\u2026 or blushes their cheeks with embarrassment.<\/p>\n

Mr. Powell is simply in the hands of Wall Street\u2026 and on his knees to Wall Street.<\/p>\n

Well does he know the taste of shoeblack.<\/p>\n

Yesterday Mr. Powell got a fresh coat on his tongue. Details to follow.<\/p>\n

But first, let us look in on his masters\u2026<\/p>\n

A Banner Day on Wall Street<\/b><\/h2>\n

Wall Street was in full roar today.<\/p>\n

The Dow Jones jumped an additional 582 points. The S&P gained 58 points; the Nasdaq, 169 points of its own.<\/p>\n

CNBC, by way of explanation:<\/p>\n

\n

Stocks rose on Tuesday as a record jump in retail sales \u2014 coupled with positive trial results from a potential coronavirus treatment and hopes of more stimulus \u2014 sent market sentiment soaring. <\/i><\/p>\n<\/blockquote>\n

Government number-torturers reported this morning that May retail sales jumped a record 17.7%.<\/p>\n

The chronically erring Dow Jones survey of economists had projected a 7.7% increase.<\/p>\n

Yet we are not surprised by the surge. April\u2019s numbers were true abominations. But certain economic restrictions were waived in May.<\/p>\n

A trampolining back was therefore expected.<\/p>\n

Meantime, a medicine named dexamethasone \u2014 a widely available medicine \u2014 is evidently effective in the treatment of deathly ill coronavirus patients.<\/p>\n

It reportedly axed hospital deaths by perhaps one-third.<\/p>\n

Thus the market had its spree today. But it merely added to yesterday afternoon\u2019s joys\u2026<\/p>\n

Powell Licks Wall Street\u2019s Shoes<\/b><\/h2>\n

The Dow Jones had been off 762 points in early trading yesterday, quaking with coronavirus-related fear.<\/p>\n

But then Mr. Powell sank to his knees\u2026 and tongued Wall Street\u2019s wingtips…<\/p>\n

For the Federal Reserve announced it intends to purchase individual corporate bonds \u2014 not merely ETFs.<\/p>\n

By its own admission, it will:<\/p>\n

\n

Begin buying a broad and diversified portfolio of corporate bonds to support market liquidity and the availability of credit for large employers.<\/i><\/p>\n<\/blockquote>\n

We will not burden you with the plan\u2019s intricacies. You need only know this:<\/p>\n

Yesterday\u2019s announcement \u201cpressed the risk-on button,\u201d as money man Bill Blain styles it\u2026<\/p>\n

\u201cCentral Banks Are Now de facto Guarantors of the Corporate Bond Market\u201d<\/b><\/h2>\n
\n

Fears about the rising number of reopening coronavirus hotspots and economic threats were superseded by unbounded joy as the Fed announced it will buy secondary market corporate bonds direct[ly] rather than through ETFs, without any need for companies to certify their eligibility. That pressed the risk-on button \u2014 and markets recovered.<\/i><\/p>\n<\/blockquote>\n

And so the free market sinks deeper into oblivion:<\/p>\n

\n

Central banks are now de facto guarantors of the corporate bond market.<\/i><\/p>\n

What has all this QE Infinity and ZIRP interest rates created?… Where market prices have become meaningless as a result of financial asset inflation? Where junk bonds are priced like AAA securities, allowing private equity funds to thrive?<\/i><\/p>\n

I am beginning to wonder if there is any point in thinking about markets any more\u2026 Just follow the central banks\u2026 don\u2019t think. Just buy.<\/i><\/p>\n<\/blockquote>\n

\u201cDon\u2019t think. Just buy.\u201d<\/p>\n

We think the proper advice might rather run this way: \u201cDon\u2019t buy. Just think.\u201d<\/p>\n

Yet we do not dispense financial advice.<\/p>\n

Picking Winners and Losers<\/b><\/h2>\n

Our own Nomi Prins penetrates to the core of yesterday\u2019s message. Nomi rings dead center when she says:<\/p>\n

\n

As if the Fed hasn\u2019t done enough to destroy honest markets, now it plans to start buying individual corporate bonds. It\u2019s just another step closer to the Fed deciding the winners and losers in the market.<\/i><\/p>\n<\/blockquote>\n

Thus the Federal Reserve is a referee who has taken a bribe, a butcher who thumbs the scales, a rogue, a traitor to justice.<\/p>\n

A central banker with a conscience might lower his head in shame\u2026 and a red flush of embarrassment might stain his cheeks.<\/p>\n

Yet Mr. Powell holds his head high and puffs his chest, proud as any peacock.<\/p>\n

His cheeks, meantime, are pale.<\/p>\n

Yet ours are scarlet \u2014 scarlet with embarrassment for the man incapable of embarrassment.<\/p>\n

\u201cFrom Lender of Last Resort to Stockjobber\u201d<\/b><\/h2>\n

The Federal Reserve was originally fashioned to be the \u201clender of last resort.\u201d Yet that designation is presently a cruel and mocking jest.<\/p>\n

It has passed from lender of last resort to stockjobber.<\/p>\n

Economist Thomas M. Humphrey is the author of Lender of Last Resort: What It Is, Whence It Came, and Why the Fed Isn\u2019t It.<\/i><\/p>\n

From which:<\/p>\n

\n

While there exists such an entity as the classical lender of last resort (LLR) \u2014 the traditional, standard LLR model, to be exact \u2014 the Fed has rarely adhered to it\u2026 The Fed has deviated from the classical model in so many ways as to make a mockery of the notion that it is an LLR. In short, the Fed may be many things, crisis manager included. But it is not an LLR in the traditional sense of that term.<\/i><\/p>\n<\/blockquote>\n

What is the proper function of the central bank, by Humphrey\u2019s lights?<\/p>\n

Six Mandates of Sound Central Banking<\/b><\/h2>\n

As summarized by Wikipedia, a central bank exists to:<\/p>\n

\n

(1) protect the money stock instead of saving individual institutions; (2) rescue solvent institutions only; (3) let insolvent institutions default; (4) charge penalty rates; (5) require good collateral; and (6) announce the conditions before a crisis so that the market knows exactly what to expect.<\/i><\/p>\n<\/blockquote>\n

A word of explanation, perhaps, on \u201cpenalty rates.\u201d<\/p>\n

The central bank should charge interest rates above the market rate.<\/p>\n

Otherwise the central bank would be a lender of resort \u2014 not the<\/i> lender of last<\/i> resort.<\/p>\n

A high rate further encourages debtors to retire their debts rapidly\u2026 to shake loose the heavy burden as soon as circumstances allowed.<\/p>\n

Yet what does the Federal Reserve\u2019s actual record reveal?<\/p>\n

\n

(1) “Emphasis on credit (loans) as opposed to money,” (2) “taking junk collateral,” (3) “charging subsidy rates,” (4) “rescuing insolvent firms too big and interconnected to fail,” (5) “extension of loan repayment deadlines,” (6) “no pre-announced commitment.<\/i><\/p>\n<\/blockquote>\n

Professional Incompetence<\/b><\/h2>\n

That is, the Federal Reserve takes sound central banking and knocks it 180 degrees out of phase.<\/p>\n

It wars against all six mandates \u2014 <\/i>and massively against Nos. 1, 2, 3, 4 and 5.<\/p>\n

Imagine a plumber who does not patch leaks but creates leaks\u2026 a doctor who does not mend bones but cracks bones\u2026 a head shrinker who does not shrink heads but expands heads.<\/p>\n

Now you have the flavor of it.<\/p>\n

Yet the Federal Reserve\u2019s professional pride is unruffled. It displays no embarrassment, no shame at a job done wrong.<\/p>\n

In fact, it believes it is a job done right…<\/p>\n

Regards,<\/p>\n

Brian Maher
\nManaging editor, The Daily Reckoning<\/i><\/p>\n

The post Goodbye, Free Market<\/a> appeared first on Daily Reckoning<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

This post Goodbye, Free Market<\/a> appeared first on Daily Reckoning<\/a>.<\/p>\n

How the Fed has violated every principle of sound central banking…<\/p>\n

The post Goodbye, Free Market<\/a> appeared first on Daily Reckoning<\/a>.<\/p>\n","protected":false},"author":14,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""}},"footnotes":""},"categories":[484,1417,3724,366,656,818,4372,463,1221],"tags":[],"_links":{"self":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts\/1190688"}],"collection":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/users\/14"}],"replies":[{"embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1190688"}],"version-history":[{"count":1,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts\/1190688\/revisions"}],"predecessor-version":[{"id":1190689,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts\/1190688\/revisions\/1190689"}],"wp:attachment":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1190688"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1190688"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1190688"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}