So the Fed didn’t taper at all against the predictions of economists and to the bewilderment of markets. Econo-mystics’ are left scratching their heads while dollar signs flash in the eyes of traders and markets. It’s comical really because for all the training and education in the world they seem to be missing a fundamental point. Markets are spiking worldwide on the news of continuing cheap money (or at least they think it is) and it’s completely rational in the upside down world we find ourselves. Further QE would indicate that the economy is in bad shape and give pause to markets but the opposite is happening, bad news is good news and this has been the trend in the bizzaro world we’re navigating.
What is this fundamental thing people are all missing? It’s not a free market! We’ve entered the age of central bank economies, not the full trot communist centrally planned economy dictating where exactly the means of production are deployed (pretty close) but ‘planned’ via monetary extension. ie: essentially Ben Bernanke is maintaining interest rates low , bond yields low so that they push capital flows into the market . This is why you have the S&P hitting all time highs while the economy is ‘recovering’ modestly. The Fed’s objective with this is to encourage capital expenditure by companies through low interest rates and as such spur employment , even employing ‘forward guidance’ as new tool in the arsenal because there isn’t any more wiggle room with rates adjustment without chronic effects . Problem is a diminishing return with each leg of QE they put out.
Basically now, all the economics that you learned in college isn’t working. The figures don’t add up if you like but the premise is this; the market is being given the illusion of free market price determination but it’s not. It’s a Keynesian control economy, from’ intervention ‘to occupation if you like. We did a bit and it worked out ok so now let’s just run the whole damn thing. Business leaders smell the stench but can’t quite locate the rotting fish head their peers left in their dorm room. Like I said in a previous blog post , never call a bottom because it can always get worse so the party is on today but watch out for the hangover.
Shadow Chronicle 