Will Market Dynamics Eventually Overpower Central Bank Manipulation?

Market Dynamics vs. Market Manipulation

Podcast discussing the success of central bank manipulation of interest rates to produce a rising stock market with no real economic growth.

JM Bullion
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Podcast Summary

0:00- 4:49 Introduction

Boosting of Asset Prices Via Public Sector Buying and Company Share Buy Backs

4:49-7:07 Discussion how stocks are boosted without a corresponding increase in company fundamentals via excessive share purchases by the public sector and the companies themselves. An artificially low/no interest rate environment makes this possible. The impact harms savers and helps the wealthy that own assets whose prices rise and harms workers as companies use excess cash to buy their own shares back rather than to hire workers. Discussion of the difference between the limits on using monetary policy to boost stock prices vs. home prices.

The Fed’s View on the Economic Recovery

7:07-8:25 the discussion of the Fed’s view on ending quantitative easing (QE) because in their view the economy is recovery and they have hit their unemployment target and are near their inflation target. The Fed is so confident that the economy is accelerating that there is even talk of ending QE “early”- after only 5 years of QE and $4 trillion printed. The Fed and the media like to trumpet the decline in initial jobless claims and the unemployment rate as signs of an improving labor market.

Initial Jobless Claims Come in Higher Than Expected- Jobs Recovery Intact!

The number of Americans filing new claims for unemployment benefits unexpectedly rose last week, but not enough to change views the labor market was strengthening.”

European Central Bank Opts for Negative Interest Rates

8:25-10:22 Discussion how the Fed gets a boost from the European Central Bank (ECB) going to negative interest rate. Prediction that the Fed will continue the tapering of QE and may even accelerate it to show confidence in the “recovery”. Who is buying the U.S. Treasuries that the Fed is no longer buying under QE? The Fed? the ECB?

The Impact of Fed Policy on the Housing Market

10:22 -14:15 Discussion of the impact of inflation the housing market and the economy. The Consumer Price Index (CPI) understates inflation and the Fed always strives for more inflation.

Will Market Dynamics Eventually Overpower Central Bank Manipulation? Does Any One Care?

14:15-19:24 discussion of how the central banks control the market and seem to have increased their grip. No one is complaining because stock prices are rising (and have been rising for awhile) though there is no corresponding increase in economic activity. People who have believed in the economic recovery story have made a lot of money in the stock market. Monetary policy has stimulated demand but not production which results in the demand being satisfied in purchasing foreign goods with borrowed money. When the Chinese Yuan gets revalued higher it will cause price inflation in the United States as import prices will become higher.

Student Loan Relief (Bailout)

19:24-23:30 discussion of the recent announcement to provide relief on student loans. Discussion of the parallel to government interference in the housing market, which has the impact of driving home and college prices higher and the solutions offered-make it easier to overpay by lowering lending standards or provide relief if you can’t pay. If the government guarantees on loans were removed, prices would drop for housing and education. Home sales would increase with lower prices. Higher home prices means fewer sales and less commissions paid to real estate agents.

Why is Home Price Inflation Considered a Good Thing?

23:30-26:50 Discussion of how rising home prices are generally cheered on in a way that rising prices of other goods and services is not. Inflation does not stimulate an economy. People buy fewer goods when prices are higher- that is why companies have sales that lower prices- to increase sales!
People buy less when prices are higher.(unless they can borrow more money) Boosting demand rather than production is a wrongheaded policy.

U.S. Natural Gas Boom

26:50-29:50 Discussion of the natural gas boom in the United States- economic success happening outside of Central Banks or government control. Central banks want to be in control of the economy and not allow the resource sector of the economy to gain political influence. The housing, insurance and banking sectors are controlled by the government. Government itself also employees a large percentage of the population.

The Return of Home Equity Loans

29:50-33:50 discussion of the return of home equity loans. Discussion of what the money is being used for- either to repay credit card debt of to invest in the stock market, further boosting demand for shares. Discussion of the adverse consequences of home equity loans going bad. Discussion of the housing bubble this time vs. ten years ago- Main Street vs. Wall Street.
Discussion of the mentality that anyone can buy a home or get a loan no matter credit or job history.

Government as Provider

33:50-38:30 discussion of how the Federal government provides benefit in exchange for votes. Discussion of how government programs become embedded in society ( social security, medicare, Obamacare) such that even conservatives defend their continuation as people have reliance on the programs. When in prison, you eat the prison food.

David Brat- Ryan Sloper’s Economic Professor

38:30-42:49 discussion of the election of David Brat who recently won a primary election against House Majority Leader Eric Cantor. According to Ryan’s recollection, David Brat as a professor was not a free market adherent. He may be a disappointment to the Tea Party. Nothing in politics happens if not for a reason- Franklin Roosevelt.

Lobbyists and Ron Paul

42:49-46:20 Discussion how congressmen get Potomac Fever when they arrive in Washington and end up the tools of lobbyists-with the exception of Ron Paul. Discussion of Ron Paul vs. Rand Paul. The coopting of Rand Paul. Discussion or Ralph Nader’s Left-Right alliance and third party Presidential bids. Discussion of the Republican Party nominating process of 1912.

The Poverty of Hillary Clinton

46:20-52:45 discussion of Ms. Clinton’s supposed poverty upon leaving the White House upon her husband final term as President. Discussion how politicians can get away with saying almost anything as they have an army of supporters willing to defend them. What passes for a valid excuse for a politician would never fly for an private individual (If a politician is charged with a misdeed he merely has to point out his opponent did the same or worse). Politicians learn early that people below you are expendable. The media rarely follow up with hard follow up questions because they will be denied future access.

Will the Fed Answer Questions as To Who the Mystery Buyer of Treasuries in Belgium Is?

52:45 Will Janet Yellen answer questions as to who the mystery buyer of treasuries in Belgium is? People don’t listen to what is being asked and what is being said, but rather who is asking what and who is answering.
Talk is gold in politics, cheap elsewhere.

The Poverty Of Hillary Clinton

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Further Reading:

QE Encourages Stock Buy Backs and Discourages Hiring

The Dark Side of Artificially Low Interest Rates

Initial Jobless Claims

The Dark Side or Rising Home Prices

Home Equity Loans- The Homeowners’ Grand Delusion

Foreign Banks Hold Most Excess Reserves, Report Contends

Negative European Interest Rates Means European Banks buy U.S. Treasuries

Is a Euro Dollar on the Way?

Janet Yellen and Negative Interest Rates

ECB to do QE?

Initial Jobless Claims

Obama, Freddie Mac and Fannie Mae Hit the Panic Button on Housing

How QE Encourages Share Buy Backs and Discourages Hiring

Housing Inventory Shortage Myth

Largest Foreign Holders of US Treasuries

Reuters Reports on Belgium Buying of U.S. Treasuries

Obama, Fannie Mae and Freddie Mac Hit the Panic Button on Housing

Royal Canadian Mint

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