Janet Yellen Sees Benefits to Central Bank Stock Purchases

Janet Yellen Sees Benefits to Central Bank Stock Purchases, by David Harrison.

Federal Reserve Chairwoman Janet Yellen said Thursday there could be benefits to allowing the central bank to buy stocks as a way to boost the economy in a downturn. …

The Fed doesn’t have legal authority to buy stocks. After the financial crisis, it bought Treasurys and mortgage-backed securities to push down long-term yields to encourage borrowing, spending, hiring and investment. …

Fed officials have been thinking about new tools it can use to make policy now that interest rates and inflation are expected to remain low for the foreseeable future. That leaves less room to cut short-term borrowing costs to spur economic activity, the Fed’s primary policy measure.

“If our economy were hit by a negative shock and the Fed needed to intervene to stimulate the economy, we have less room using our conventional overnight interest rate tool to do that,” Ms. Yellen said Thursday. “We need a wider range of tools.”

Other central banks, including the Swiss National Bank and the Bank of Japan, already use stock and exchange-traded fund purchases as a monetary policy instrument. Officials at the European Central Bank also haven’t ruled it out.

Japan, China, and Hong Kong have already bought stocks to support the market. In an effort to prevent debt dynamics smashing the world’s economy into a Very Great Depression, the central banks will feel they have license to do nearly anything to inject more money into the system. Heck, the Swiss central bank is reportedly creating money out of thin air and using it to buy stocks, including gold mining stocks.

Eventually those with the ability to print money will own everything, unless money becomes meaningless first.

Many paper currencies have been tried in the last thousand years, and they generally last about one to two generations before they succumb to temptation and print too much. They all died, except the current ones. Our current paper currencies technically started in 1971 — when they severed the last link to gold, which had constrained money manufacture. In our system, money is manufactured by creating matching debt when a loan is made from a bank. The massive debt problem in the world is the aftermath of a bubble of money manufacture that started n 1982.

Evans - debt to gdp ratio, 2015