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Jim Cook



Every once in a while I switch the TV channel from Fox to CNBC to see what the liberals are saying.  After listening awhile I get a deep sense of hopelessness and foreboding for our country.  The most important thing for the left is giving money to people.  They are happy to see the growth of food stamps, disability payments, housing subsidies, free healthcare and all the other welfare benefits.  They utterly fail to see the damage it is doing to the recipients.  Whole cities that once flourished have deteriorated into rotting eyesores populated with shambling hulks of chemically dependent drones.  These people are no longer employable.  They have become incompetent and helpless and the liberals can’t see that it’s their doing.

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The Best of Jim Cook Archive

Best of Bill Buckler
October 17, 2012
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On October 2, Fed Chairman Ben Bernanke spoke in Indianapolis. He stated clearly that higher stock and home prices would provide further impetus to spending by businesses and households. In a response to Mr Bernanke's words, a major bank chief economist who spent most of his career as an economist on the board of the Fed in Washington, had this to say: "It's pretty clear that the stock market is the most important transmission mechanism of monetary policy right now. That's where you're getting most of the action in terms of lift to the economy. It's the stock market that's going to be carrying the load."

When they announced QE3 on September 13, the Fed made it quite clear that their monetisation of mortgages and government debt was "open-ended". By early October, bankers and Wall Street analysts were falling all over themselves to try and drum the message into the heads of Americans. The message, according to these markets sages, is simple. Perpetual debt monetisation by the Fed will ensure perpetually low (to the vanishing point) yields on government (and other) bonds. US consumers cannot live with the low yields in prospect. Therefore, those same US consumers have no choice but to return to the stock market. The "economists" at Deutsche Bank have "calculated" that perpetual monetisation will lift stock prices and house prices by 3 and 2 percent respectively over the next two years - assuming that the Fed keeps QE3 going until the end of 2013 at the earliest.

According to Mr Ward McCarthy, another Wall Street chief economist who worked for years at the Richmond Fed: "They're (the Fed) very explicit about trying to create financial conditions to try to support the economy. It's become more explicit out of necessity, because the Fed doesn't have the Fed funds rate to use as a tool because of the zero bound."

The crowning glory, though, is a quote from Mr Bernanke's speech at Jackson Hole back on August 31, two weeks before the announcement of QE3: "It is probably not a coincidence that the sustained recovery in US equity prices began in March 2009." Mr Bernanke has neither the demeanor nor the delivery to contemplate a second career as a comedian. But we must say he was very hard done by when this comment did not provoke a huge gale of laughter from his audience.

Machinations No Longer Move Markets:

The start of the professed dependence of the US "economy" on the performance of its financial asset markets was in 1982 when the Fed dragged their interest rates down by main force and the US Congress gave themselves permission to rack up perpetual deficits - see the Global Report in this issue. The resulting boom saw the Dow soar from 776 to 11723 (up 1411 percent) by January 2000. The "progress" since then has been erratic, to say the least, but as of October 5, 2012, the Dow was a mere 554 points or 3.9 percent below the all time high of 14164 it had set five years earlier on October 9, 2007.

The three decades since 1982 have seen a steady increase in the "sophistication" of the methods used to perpetuate this bull market. This has been ensured by the gigantic increase in the power of computers alone. What was unimaginable to a "trader" as late as the mid 1990s is routine on today's trading desks. The problem is that while the mechanism was becoming more impenetrable to market observers, the explanations as to why these mechanisms were "necessary" has become more and more crude as time has worn on.

Today, the markets for financial assets are TOTALLY dependent on an everlasting and ever increasing flow of "free" money in order to function. Slow down that flow by any means - intentional or unintentional - and the markets go into free fall very quickly indeed. That was illustrated globally in late 2008 - early 2009. It has been illustrated in peripheral Europe since 2010 as surging interest rates cut the fuel feeding the markets. To keep the fuel flowing, the reasons given for the necessity to provide it must remain credible. They have NOT remained credible. Not only do the majority of the "retail investors" which the markets rely on now believe they don't work - a growing number of these investors see no way that they CAN "work".


.Ó 2009 – The Privateer

(reproduced with permission)


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