A Platform Of Sound Economics For RFK To Run On, Part 2

Any viable alternative to the failed spend, borrow, print and inflate economic policies of the uniparty must start with root-and-branch reform at the Fed. That’s because all of today’s maladies—low growth, high inflation, a shrinking middle class and the concentration of vast windfall wealth at the tippy-top of the economic ladder—stem from the central bank’s basic modus operandi. That is, the Fed’s overwhelming presence in Wall Street money and capital markets via massive bond-buying, interest rate pegging, yield curve manipulation and price keeping operations designed to prop-up equity and other risk asset markets.

Needless to say, this modern form of Wall Street-centric central banking has been an abject failure and not just because it is anti-growth, pro-inflation and deeply biased in favor of the super-rich who own the financial assets which have been inflated to a fare-the-well. Its even more fatal defect is that it leads to near total policy capture by Wall Street operators, traders and speculators.

There is no mystery as to why this is the case—even crediting the arguably good intentions of the 12 people who serve on the FOMC (Federal Open Market Committee), which is the Fed’s policy-making forum. To wit, at the time of every Fed meeting there are extant literally tens of trillions of bets that have been placed by Wall Street’s fast money-operators based on the expected announcement as to even a 25 basis point change in money market rates, the monthly rate of bond-buying or selling to the nearest $5 billion and hints in the post-meeting statement and chairman’s press conference as to what the FOMC may do next month and in the months immediately beyond that.

In a word, the rise at the Fed of what Alan Greenspan called “the wealth effects doctrine” has fundamentally changed Wall Street. In days of yore it invested on the facts embedded in the flow of business and financial information on the free market. But now it trades overwhelmingly on the flow of monetary policy tweaks coursing through the brains of the 12 FOMC members and a handful of Wall Street gurus who attempt to divine their latest revelations.

Accordingly, the Fed dare not disappoint the momentary Wall Street consensus because its entire “policy transmittal” process works through the financial markets. Under today’s Fed model, prices in the money, bond, stock and real estate markets are actually the transmission mechanism which purportedly conveys the Fed’s policy signals and intentions to main street.

So, for want of a better term, Wall Street has the FOMC by the short-hairs. And it never lets go. Doing Wall Street’s short-term bidding meeting after meeting after meeting leads to nothing less than permanent policy capture by traders and speculators.

And we do mean traders, not investors. In theory the latter were historically happy with free market pricing of financial assets on Wall Street and a sound dollar linked to gold.  After all, old-fashioned “investors” were in the business of picking profitable investments for the long-haul based on the intrinsic facts of the instrument in question.