Bankster Blob Keeps Growing
Much to the chagrin of my “long-time” readers, it’s difficult to turn a blind-eye to more US Fed shenanigans.
Or, perhaps they’re not shenanigans. Maybe this is part of a well-crafted master plan? But I digress into empty speculations…
“Fed Will Begin Buying Broad Portfolio of Corporate Bonds” (1)
First it was all that buying of US Treasuries, all those moons ago. It was done for so long that the process developed the affectionate “QE” moniker (and that has zero to do with Queen Elizabeth). We were assured that QE was for federal government debt only. Besides, it won’t last long. The purchased bonds will be unwound from the Fed balance sheet as soon as market conditions improve.
Except…more than a decade came and went with no apparent improvement in market conditions. For those with a short memory, the news was always a mix of “market’s improving” on the one hand, while the other hand was telling us more stimulus was needed.
And then another market disruption occurred. So, instead of unwinding the QE purchases, the Fed began printing money for distressed companies all thanks “only” to a global virus.
Surely, we were told, after buying all those federal government bonds, the Fed couldn’t just stand on the sidelines and not help the small and mid-sized businesses along with state and local governments?
And then, after a very brief period of time, high-yield bonds, collaterialized loan obligations and commercial mortgage-backed securities were added to the shopping list. Why?
Wrong question, my friends.
Why not??? Besides, the printing press is set to warp infinity so may as well get as many hands on all that money being spit out as possible.
The risks? BAH! And the moral hazard be damned! Got debt to sell? Step right up to the Fedster window of endless money supply.
But why stop there? Markets still seem rickety so time to start buying up a “broad portfolio” of corporate bonds. Besides, why should the Fed own shoddy debt but not the “blue chip” debt?
In all the hysteria, some small, quiet voices in a corner at the back of the room ask: “So, when does all this buying stop? Or at least, when does your shopping list stop growing, Mr. Fed?”
“We can’t hear you atop all this noise the money printing press is making. But thank you for asking questions we don’t care to answer. Please come again.”
I know, I know. Some of you are thinking this Recovering Bankster has lost his marbles. What a ludicrous picture to paint!
But, my friends, ludicrous situations call for ludicrous pictures. The process by which any last vestiges of capitalism are being peeled away and replaced with central command is turning comical.
Naturally, “don’t fight the Fed” season is now in full swing. Any bond manager not selling to the Fed right now is likely to be seen as a complete fool, at least in the short run. So, any guesses what’s happening right now?
Mr. Free Market operates on a price discovery system. More buyers than sellers pushes prices up. Demand outweighs supply.
On the flip side, more sellers than buyers pressures prices down. Supply outweighs demand.
Along comes Mr. Fed, punches Mr. Free Market in the head, knocking him to the ground and positions his $250 billion of capacity to buy up assets. Level of demand is overinflated, leaving prices to linger superficially high.
Remember the “too big to fail” excuse back in the 2007-2009 financial crisis? We were told some companies had to be bailed out because their failure would otherwise be cataclysmic.
If that was to be cataclysmic, what word should we use for the time if/when Mr. Fed withdraws all this money from the system? Demand will fall off a cliff, with prices close in tow.
So, here’s a question for you: Do you still think the Fed, or any other central bank for that matter, will actually ever unwind their balance sheets, especially now as they load up on these “assets”? If you’re watching on YouTube, please comment below.
And consider, today it’s corporate debt. What’s next? Where does it end?
Come to think of it, I have an idea…
Dear Mr. Fed…my name is Adrian Harasymiw. Please contact me as I have a mortgage I would absolutely love for you to buy from my bank. Based on what you have been doling out thus far, my mortgage is but a mere atom in your bucket of investments. You won’t even notice it. In fact, I’m counting on you not noticing so that way, I can stop paying it and, unlike my bank, you won’t bother coming after me and foreclosing. It’s a win-win for both of us! Call me!
Am I being ridiculous? Yes, I say this partly in jest but mark my words, the Fed ain’t done yet. Corporate bonds are just another step in their master plan.
The situation is comically scary.
But what do I know? I'm just a Recovering Bankster.