The Federal Reserve is ruining us
By Chris Martenson of Peak Prosperity
Last week, volatility made a long-overdue return to the US and global equity markets.
It began with a 2-day back-to-back violent drop. Day 3 saw a big rebound, swiftly followed by two more days of gut-wrentching losses. And then finally, last Friday, the day saw massive swings both high and low, ending with a huge upside run.
During this period the S&P 500 lost more than 300 points. Since then, though, the market has been steadily rising.
Is the danger past? Are the markets safe once more?
And if so, did the markets recover organically? Or were they rescued by The Plunge Protection Team (PPT)?
The answer matters.
If such intervention was rare we could almost justify it, if it took the form of simple, pre-arranged circuit breakers that shut the market down for a “cooling off” after they’ve moved too far, too fast. Indeed, these already exist, and are sufficient in our view.
But if such market interventions are routine, persistent, and generally depended on by the major market participants, then they’re highly destructive over the long term.
Sadly, we live with the latter.
Insiders get stinking rich by front-running the scheme (check). Normal adjustments are prevented (check), allowing dangerous bubbles of extreme overvaluation to form (check), while fostering malinvestment (check).
Do this long enough and you end up with a deformed economy, an eroded social structure, and markets that no longer function as appropriate mechanisms for capital distribution and economic signaling.
This is where we find ourselves today.
Modern-Day Soviet Crop Reports
In the former Soviet Union, the communist method of assuring economic progress was to set targets for production. Famous among them were the crop reports.
In these, year after year, the various regional oblast (province) authorities would declare having met or exceeded the crop targets, despite rarely ever truly doing so.
These crop reports were so famously unreliable that the Kremlin leadership eventually took to obtaining their information from US satellite reconnaissance data rather than their own internal reporting from local Communist Party bosses.
Basing next year’s crop planting decisions on these reports often led to famines, and sometimes even mass starvation of entire regions.
Poor data = Bad decisions.
The Soviet crop reports are now a famous example of an unreliable measure that led to disastrous consequences. Because of the false reporting, poor decisions were made. Eventually it became clear to even the Soviets that attempting to centrally micro-manage a major economy is an act of folly.
Too much of this and too little of that were produced. Cement, steel, and auto quotas harmed rather than helped for obvious reasons; poor information flows assured that production decisions were late or flawed or both. All this contributed dearly to the Soviet economy’s collapse.
The lessons here are instructive and simple:
- centralized management of complex systems doesn’t work, and
- bad data leads to bad outcomes
Today’s stock and bond markets are no different than the Soviet crop reports of old. They mainly represent what a small committee of central planners believe are the right numbers to achieve very broad macro-economic goals.
Enormous damage has already been done by the interventions and distortions resulting from the pursuit of the delusional aims of todays central planners (with the world’s central banking cartel being the most culpable).
But it’s poised to get a lot worse from here…