By Adam Hamilton
The US Federal Reserve has been universally lauded for the apparent success of its extreme monetary policy of recent years. With key world stock markets near record highs, traders universally love the Fed’s zero-interest-rate and quantitative-easing campaigns. But this celebration is terribly premature. The full impact of these wildly-unprecedented policies won’t become apparent until they are fully normalized.
Back in late 2008, the US stock markets suffered their first full-blown panic in 101 years. Technically a panic is a 20% stock-market selloff in a couple weeks, far faster than the normal bear-market pace. In just 10 trading days climaxing in early October 2008, the US’s flagship SP 500 stock index plummeted a gut-wrenching 25.9%! It felt apocalyptic, the most extreme stock-market event we’ll witness in our lifetimes.
This once-in-a-century fear superstorm terrified the Fed’s elite policymakers on its Federal Open Market Committee. As economists, they are well aware of the stock markets’ powerful wealth effect. With equities cratering, Americans could dramatically slash their spending in response to that devastating loss of wealth and the crippling fear it spawned. And that could very well snowball into a full-blown depression.
Consumer spending drives over two-thirds of all US economic activity, it is far beyond critical. So the Fed felt compelled to do something. But like all central banks, it really only has two powers. It can either print money, or talk about printing money. The legendary newsletter guru Franklin Sanders humorously labels these “liquidity and blarney”. With stock markets burning down in late 2008, the Fed panicked too.
Led by uber-inflationist Ben Bernanke, the Fed embarked on the most extreme money printing of its entire 95-year history to that point. The FOMC cut its benchmark Federal Funds Rate by 50 basis points at an emergency unscheduled meeting on October 8th. It lopped off another
Originally appeared at: http://davidstockmanscontracorner.com/feds-full-normalization-it-will-pulverize-the-casino/
Fed’s Full Normalization——It Will Pulverize The Casino is a story from: BitcoinWarrior.net