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Wednesday, May 30, 2012

Why the Fed Will Goose the Stock Market

The Fed is constantly finding itself stuck between a rock and a hard place.

While the Fed speaks publically about keeping inflation under control, what they do “under the counter” is to keep inflation moving ever higher. This creates artifical gains in asset prices, reaping a big benefit for government, which gleefully taxes those phantom gains as capital gains. This is the main reason why the Fed was created. After all, the Fed is a private bank (despite the appearance of a public bank, it's anything but—just read their charter). They are Little Orphan Annie to Congress' Daddy Warbucks. They print money for Congress to use to further their own political aims. And, the extra money they create—which is actually a debt instrument, the dollar—goes to finance wars and debt inflation by Congress.

Unfortunately, the creation of debt by the Fed got out of control several years ago. And, there's no way for Pandora to put the bad stuff back in her box. So, we have a society which has run into the first of a series of Limits to Growth and that huge mountain of debt is an impassable obstacle to prosperity. The Fed continues to print money, but deflation just as quickly destroys that debt-money as house prices are the black hole sucking the blood out of the economy.

Now, with Obama up for re-election and pension funds unable to earn enough money on their investments to meet the needs of retirees, the Fed has a big problem: how to keep the economy from falling off the fiscal cliff once again? Well, folks, we've seen this movie before. The Fed is going to make sure the stock market soars in order to re-elect Obama and meet the investment needs of those pension funds. So, if you are rightfully bearish and skeptical of the Fed, get ready for the stock market to rock and roll to the upside. Coming soon to a stock market casino near you.