Shutdown The Fed’s Open Market Desk, Now! (Part 3)

As we indicated in Part 2, so long as the Fed’s open market desk is operating cheek-by-jowl with the hedge funds and speculators down in the canyons of Wall Street, it will be their captive. So ensnared, the nation’s central bank will continue to flood the financial markets with the cheap debt and artificial liquidity which is the mother’s milk of speculative excess.

Indeed, the current rising crescendo of Wall Street drumbeats on behalf of an early start to rate cuts is proof positive of that crucial proposition. That’s because there is no macroeconomic reason whatsoever for rate cuts soon or even for years to come. The only thing a new cycle of ultra-cheap funding in the overnight money markets will accomplish is to provide deeper carry trade subsidies to hedge fund speculators—along with a boost to PE multiples so that stock gains can be captured by front-running traders and still more fuel for stock price and options value-boosting financial engineering in the C-suites.

The end result, of course, will be another round of ill-gotten windfall gains for the tiny class of households which hold most of the financial assets—juxtaposed with even more structural damage to the main street economy and the living standards of middle-class households.

Again, there is no question as to where the benefit of relentless money-printing has gone. During the period between 1991 and 2022 the inflation-adjusted gain in the median wage versus the inflation-adjusted NASDAQ Composite index computes as follows:

• Median Real Wage (2022 $): Rose from $32,400 to $40,850 or by 26%.

• Inflation-Adjusted NASDAQ Composite Index: Rose from 1,050 to 12,231 or by 1,050%.

That’s right. The apples-to-apples metric for the last three decades is 40:1 as between gains on Wall Street versus main street. And since the Fed claims to be the all-powerful monetary politburo that runs the present-day American economy, it surely has some ‘splainin’ to do.

In the first place, therefore, the fundamental question presents itself as to how much fiat credit and cheap liquidity from the central bank is enough? After all, the massive emissions of recent years have not been extinguished by the passage of time and have been only removed to a tiny extent by the Fed’s current phase of QT (quantitative tightening), as depicted by the slight recent dip in the chart below.