Yellen says Fed purchases of stocks, corporate bonds could help in a downturn

Yellen says Fed purchases of stocks, corporate bonds could help in a downturn, by Reuters.

The Federal Reserve might be able to help the U.S. economy in a future downturn if it could buy stocks and corporate bonds, Fed Chair Janet Yellen said on Thursday.

Speaking via video conference with bankers in Kansas City, Yellen said the issue was not a pressing one right now and pointed out the U.S. central bank is currently barred by law from buying corporate assets.
But the Fed’s current toolkit might be insufficient in a downturn if it were to “reach the limits in terms of purchasing safe assets like longer-term government bonds.”

“It could be useful to be able to intervene directly in assets where the prices have a more direct link to spending decisions,” she said.

Is it working for the Japanese? They were first out of the bubble, in 1990, and the rest of the world followed in 2008. Stagnation followed for everyone,and the Japanese economy is still moribund 26 years later, because Keynesian economics is false.

The Bank of Japan’s Unstoppable Rise to Shareholder No. 1, by Anna Kitanaka.

The Bank of Japan’s controversial march to the top of shareholder rankings in the world’s third-largest equity market is picking up pace.

Already a top-five owner of 81 companies in Japan’s Nikkei 225 Stock Average, the BOJ is on course to become the No. 1 shareholder in 55 of those firms by the end of next year …

BOJ Governor Haruhiko Kuroda almost doubled his annual ETF buying target last month, adding to an unprecedented campaign to revitalize Japan’s stagnant economy.

Central Banks Become World’s Biggest Stock Speculators, by John Rubino.

If your first reaction to the above (especially Yellen’s clear misunderstanding of the respective roles of central banks and stock markets) is “these guys are idiots,” you’re probably in the minority. Most modern citizens see government intervention of any kind as at least a potentially good thing, depending on the situation. They’re wrong in this case, for the following reasons:

  • Central banks buying equities is a direct subsidy to the richest members of society, since the higher a person’s net worth, the more stocks and bonds they tend to own. One has to wonder why, if the goal is to stimulate spending — and old notions of monetary propriety are being abandoned in any event — the world’s central banks don’t simply double every bank savings account or pay off all student loans or credit card debt. The answer, of course, is that central banks serve several masters, but their main allegiance is to the financial/political class which, as we now know, tends to benefit directly from rising share prices. So look at this policy as one more way of redirecting wealth from the poor to the rich.
  • The idea that central banks can buy up shares indiscriminately – to the point of accumulating all the available shares of some companies – without impairing the functioning of capital markets betrays a shocking ignorance of what capital markets are there for. They exist to move capital from owners to the most efficient users via share price signaling. Buy up all the shares and prices stop fluctuating, which deadens the signals the markets send to capital allocators. Capital then has no idea where to go, and really bad decisions become the norm.
  • If government becomes the biggest shareholder of the largest companies, in effect the former has taken over the latter. Is this just a backdoor way to achieve the nationalizations that failed so miserably in post-War Europe and elsewhere? The folks now in charge might view this as a positive side-effect when in reality it’s a mortal threat to pretty much everything that sets the modern world apart from the feudalism of the previous 10,000 year

Government intervention in markets is always harmful on net, in the long run. However it has become more and more common over the last century, but especially since 2008. Interventions are ruining the successful system the West developed over the last centuries. Interventions and price setting benefit the wealthy global elite, at the expense of most of us.

Where is the media to point out the problems? Running the agenda of the global elite, as usual. The media has much to answer for.