No end to cheap-money trend

By Nomi Prins
Contributing Editor

On 16 December 2015, after seven years of near-zero short-term interest rates, the Federal Reserve bumped up the federal funds rate target range a smidge, from 0-0.25 percent to 0.25 percent-0.5 percent.

Chairwoman Janet Yellen affirmed it was the start of a process “likely to proceed gradually” that translates to – well, nothing of substance, except to certain business media that declared this was the beginning of the end. (I was not one of them.)

At first, the Dow Jones Index rose 224 points. The US dollar index leapt 0.9 percent to 98.77, about 2 percent shy of its 12-year high. This was, after all, supposedly a sign the Fed thought the economy and banks could finally exist independent of its aid.

But then, a glimpse of financial apocalypse (that would be on steroids if monetary policy actually tightened) occurred: Markets began 2016 by tanking. The Fed saw what it had done. It was bad. So the Fed backtracked, not that it had stuck its neck out very far.

On 27 January 2016, the Fed declared it would leave the federal funds rate unchanged. “Gradual adjustments in monetary policy” would guarantee economic expansion at a moderate pace, said the money-manufacturing machine. The next day, oil jumped past $34 a barrel, and emerging markets showed some recuperation. Globally, stocks waxed euphoric and currencies gained vs. the US dollar. From January 27 to March 18, the Dow rose from 15,944 to 17,602, having fallen to 15,944 from 17,749 on December 16.

Power-broker bankers

Since central banks are the new global power brokers, they now coordinate actions to prop up the financial system and markets for maximum effect. Yet they are getting increasingly desperate and creative with their maneuvers and more callous with spewing associated lies that their policies support mainstream economies, not big banks.

So the next day, on 28 January 2016, in an unexpected and tightly disputed (5-4) move, the Bank of Japan decided to “apply a negative interest rate of -0.1 percent to current accounts that financial institutions hold at the bank” in order “to encourage borrowing” and “counteract the effects of recent global economic difficulties.”

The BOJ’s decision, “Qualitative and Quantitative Monetary Easing with a negative interest rate,” maintained its record government bond-buying program of 80 trillion yen per year. The move stoked Asian markets, the Nikkei in particular.

Adding fuel to that fire, at its March 10 conference, the European Central Bank presented a smorgasbord of monetary-policy decisions destined to take effect on March 16, the date of the Federal Open Market Committee meeting announcement. This timing was no accident, but another flag of global collusion. The ECB cut rates on the main refinancing operations of the Eurosystem by 5 basis points to 0.00 percent, on the marginal lending facility by 5 basis points to 0.25 percent, and on the deposit facility rate by 10 basis points to -0.40 percent. It expanded monthly asset purchases from €60 to €80 billion starting in April, lowering eligible bond quality to include non-bank corporate bonds. It announced four more refinancing operations to start in June 2016.

Sure enough, with no other game, on 16 March 2016, the open-market committee again announced it would leave rates unchanged, blaming low inflation on low energy prices. It said that given “gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace.” However, it also warned that “global economic and financial developments continue to pose risks.” In other words, the body re-embraced the non-descript term “gradual” that it had introduced as its own safety measure in December.

To be clear, it concluded, “The stance of monetary policy remains accommodative,” with a bunch of puffy qualifiers about the labor market and inflation. Because those of us that don’t believe Wall Street Journal headlines know that the Fed cares about helping the financial elite, the level of stock markets and liquidity for banks.

Here’s what really happened.

In the winter Trends Journal, I wrote the Fed inched rates up by only 25 basis points to show that it could, yet that smallest possible move didn’t indicate a tightening shift. I wrote that, at most, we’d have one or two other similarly small moves during 2016 for similar reasons. Yellen confirmed this on March 16 with an about-face off her tepid about-face.

The Fed remains utterly unable to allow markets and financial institutions to operate without its support, in the form of the cheapest money possible — if not always directly, then from its cohorts, the ECB and BOJ. Markets didn’t like the Fed’s December move (though the mainstream media blamed their subsequent fall on China, as if all of China’s economy coincidentally got much worse after the Fed raised rates a bit). So the central bank trio reinvigorated its joint strategy. The markets and bank stocks rebounded.

It doesn’t take a rocket scientist to see that central banks, the Fed in the lead, are the market.

Without ZIRP, NIRP and QE-whatever, there would be no record buybacks and no big gains for JPMorgan Chase CEO Jamie Dimon, who bought $500,000 of his bank’s own stock the day the Fed confirmed its old stance in mid-February, and right before the Fed blessed $1.88 billion in JPMorgan Chase share buybacks – and right before it didn’t raise rates again.

If all these players weren’t public conspirators, that timing would be called insider trading.  

The Fed is not simply clueless about what to do to avoid a complete demise of its reputation, the banks and the markets concurrently. It just no longer cares. With all the babble about economies, labor markets and inflation, the only thing that matters is keeping banks and capital markets afloat, particularly stock markets whose heady performance most perpetuates the illusion of economic recovery.

On March 16, the Fed simply snapped back in line with its collaborators in keeping the markets greased with cheap money and asset purchases, and its power players and the markets whose stock levels line their pockets at bonus time artificially stimulated. As I wrote before, the Fed may raise rates by another 50 basis points in total by year end, but no more than that. If it does raise rates once by this summer, the fallout will be ugly.

After the summer debacle and into the US election, the Fed and its cohorts again will revert to what they know best: wishy-washy language with dovish undertones that signify their commitment to be the market by providing its elite participants cheap money. If we get another 25 basis points in December, that cycle will recycle again in 2017.

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