Is this how capitalism dies? Through decrees from what once were the ivory towers of capitalism, no less?
The Fed is now up to $6 trillion of liquidity, or free money in the sense that it is taking over the role of large banks at 0% interest.
Go global and we’re approaching $20 trillion of central bank pledges and action.
None of the questions that tempered the start of QE are being raised.
There is virtually no one talking about moral hazard. What does it mean for our society that government is pushing so far into what was — and may never be again — the private sector? No one will bother answering.
There is no one standing in the way of the largest transfer of wealth in history. The firewalls built into the system are being torn down, and the free markets are dying with barely a whimper.
Even Deutsche Bank, undoubtedly a major beneficiary, seems concerned about where this is going.
George Saravelos, global head of Deutsche Bank’s foreign exchange research, just wrote in a report entitled “The end of the free market: impact on currencies and beyond” that:
“In a matter of weeks, policymakers have become a backstop for private-sector credit markets. At the extreme, central banks could become permanent command economy agents administering equity and credit prices, aggressively subduing financial shocks. It would be a bi-polar world of financial repression with high real economy volatility but very low financial volatility. A ‘zombie’ market’.”
The Fed’s most recent announcement — $2.3 trillion in greatly expanded funding — goes as far as dipping into the junk bond market through buying up ETF shares.
A free market this is not. There is no version of capitalism that can divorce risk from profits. There is no version of this that forces society to shoulder the burden while a select few capture the profits.
As Mati Greenspan, founder of analysis and advisory firm Quantum Economics, told Forbes recently:
“What we’re witnessing here is nothing less than the death of capitalism and birth of something new. It’s quite fascinating, really.”
Quite fascinating in the sense that it is hard to look away from your house burning, yes. He continued:
“By offering to buy an ‘unlimited’ amount of assets from the market the Fed is basically saying that they’d rather nationalize the markets than see prices drop. What started out a decade ago as an experiment in monetary policy now has us witnessing the transition to a new economic system.”
That really is what we’re seeing isn’t it? A new economic system.
The new one will have no functional independence. Traders and investors will have to primarily worry about what the Fed unilaterally decides to do to the economy.
We will have to worry about which companies will be winners and losers. Which are worthy of protection from the king. A court of aristocrats and princes constantly jockeying for favor and patronage.
The grand experiment that is QE is being ramped up to the point where we truly are in uncharted territory with an unrestrained Fed.
This will be the beginning of a new economic system if there is no one in power to keep it in check. Trump didn’t. Biden certainly won’t. Congress long since abdicated the true power of the purse to focus on their own reelection war chests.
This may be unprecedented but it isn’t unparalleled. History is rife with examples of what happens when a free market is captured and bled dry.
An unconstrained monetary printing press has always ended one way.
Times of grand economic transition always bring on intense periods of uncertainty and profound loss for those not protected by the de facto rulers.
There is a reason why gold is tearing to new highs. There are so many more reasons why this is just the beginning. Protect yourself now.
