Trump and the Stock Market Are the Winners in the Fed’s Repo Loan Binge; Here’s the Losers

Trump and the Stock Market Are the Winners in the Fed’s Repo Loan Binge; Here’s the Losers, by Pam and Russ Martens.

The S&P 500 Index and the Dow Jones Industrial Average set new record highs every single day last week. This occurred despite the Federal Reserve justifying its unprecedented hundreds of billions of dollars each week in cheap loans to Wall Street’s trading houses as necessary to stem a “liquidity” crisis.

You can’t have a liquidity crisis when the stock market is setting record highs for an entire week. Those two things just don’t correlate.

The Fed, through its money spigot, the New York Fed, began sluicing these funds to Wall Street on September 17, the day the overnight borrowing rate in the repurchase agreement (repo) loan market spiked from 2 percent to 10 percent. This was the first such intervention by the Fed since the financial crisis [of 2008]. …

On December 12, the New York Fed upped the ante. It announced that over the next month it would shower the trading houses (primary dealers) on Wall Street with a cumulative total of $2.93 trillion in short-term loans.

Now Wall Street has made it clear what the cheap money is being used for. It’s not being loaned out to help the general economy – it’s being used to push the stock market to record highs each day.

The Federal Reserve, as the central bank of the United States, is not supposed to meddle in elections or impeachment hearings. But by providing unprecedented cheap funding to Wall Street’s trading houses, it is artificially boosting the stock market and the 401(k)s of workers, which is artificially boosting the economic track record and re-election chances of President Donald Trump — who has repeatedly linked his reputation to a thriving stock market. …

Since it is billionaires and multi-millionaires who own the bulk of the U.S. stock market, when the President speaks of a market crash he is actually predicting a re-balancing of America’s unprecedented wealth inequality. …

By funneling cheap loans to Wall Street’s trading houses instead of using its bully pulpit to demand reforms at the casino-like mega banks, the Federal Reserve is aiding and abetting and guaranteeing that the next market crash will be worse than it needs to be. That crash will result in more fiscal spending to shore up the economy, ballooning the national debt exponentially. This will mean that our children and their children will experience a blighted standard of living as more and more of Federal tax revenues are diverted to service the debt load instead of going to healthcare, education, and rebuilding the nation’s crumbling infrastructure.

The markets sense that the US Federal Reserve is becoming very “accommodative”. None of the world’s central banks can lower interest rates much further, so the only weapon they have left is to print. The US Fed signaled that when there is any sort of crisis, even a mini one like in September, it would leap to print more money. (Did they offer you any? Me neither.) Though of course it is not called “printing,” or even “quantitative easing” or some new euphemism, because that would undermine their credibility.

That means much higher prices for everything, eventually. But asset prices rise first. The markets are now front-running the central banks, pushing up all assets to record highs. Except gold, whose price is “controlled” because a rising gold price signals lack of confidence in the monetary authorities and their paper currencies.