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Business/Finance See other Business/Finance Articles Title: Central Banks Are Willfully Destroying This Critical Market Function Central Banks Are Willfully Destroying This Critical Market Function By Michael E. Lewitt, Global Credit Strategist, Money Morning • August 28, 2016 With central banks owning $25 trillion of financial assets and sovereign wealth funds owning countless trillions more, it is time to ask whether capitalism as we know it is a thing of the past. These non-economic actors have different motivations than traditional investors who buy assets in order to earn a profit over a reasonable period of time. Central banks are buying stocks and bonds in order to monetize government debt and keep afloat the endless Ponzi schemes required to finance massive entitlement promises to their constituents. Sovereign wealth funds are looking for places to park their cash for extremely long periods of time and often focus on assets with trophy or strategic value. But the most important thing these two types of buyers have in common is that they don't have to sell, which means that their ownership can inflate the value of what they own for prolonged periods of time. This destroys the price discovery mechanism that markets are supposed to provide. And without price discovery, markets cease to function properly. Then the destruction starts in earnest… Here's Where We See This Effect in Action Bond markets are ground zero for this phenomenon. Somewhere in the vicinity of $13 trillion dollars of global bonds carry negative interest rates, which produces the absurd and dangerous prospect of lenders paying borrowers for the dubious privilege of lending them money. While some try to rationalize this monstrous arrangement as a sensible way to provide for the return of their money if not a return on their money, it is nothing more than government confiscation of capital. It is a catastrophic undertaking destroying savings and eroding the capital bases of banks, insurance companies and pension funds. It speaks to a broken global financial system guided by corrupt and incompetent central bankers and politicians. Quite a few of them were clustered together this week. What We Heard from Jackson Hole Last week, the Federal Reserve met in Jackson Hole, Wyoming for its annual confab and naturally investors were hanging on every word uttered by the former tenured economics professors comprising the committee to destroy the global economy. There were strong hints from Fed Chair Janet Yellen and Vice Chair Stanley Fischer that rates will soon rise, but we have heard such promises before only to see nothing happen. Before the meeting, an economically illiterate activist group called "Fed Up" met with the Fed and demanded that interest rate hikes be further delayed lest they harm minority communities. But the worst thing the Fed could do for anyone is keep interest rates low; instead, it should announce that it will start raising rates by 25 basis points each quarter until the Fed Funds rate reaches 2% and then urge Congress to act on meaningful tax reform and fiscal stimulus that are the only policies that will help minorities and the rest of the economy. And then this nation should embark on meaningful civic and economic education for all of our children to insure that they understand how economies work – which is not by increasing entitlements and reducing the cost of money to the point where it has no value. Post Comment Private Reply Ignore Thread Top • Page Up • Full Thread • Page Down • Bottom/Latest
#1. To: BTP Holdings (#0)
Hard to see profits and dividends tripling to warrant this kind of a market rise. Might be possible if cheap made-in-China robots replace most workers.Otherwise investors will be subject to whims of manipulators.
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