"It took the Fed 95 years to build up a balance sheet of $1 trillion and only six years to go from there to the present level. The Federal Reserve was providing this stimulus to improve the growth of the economy,but it is my view that three quarters of the money injected into the system through the purchase of bonds went into financial assets pushing stock prices up and keeping yields low.If I am right, the Fed contributed almost $3 trillion (some may have gone into bonds) to the $13 trillion rise in the stock market appreciation from the 2009 low to the current level, earnings increases explained $9 trillion (1.5 x $6 trillion) and other factors accounted for $1 trillion. You could argue that the monetary stimulus financed the multiple expansion in this cycle."
I think Byron is being generous with the contribution of earnings, which are increasingly questionable artifacts of dodgy accounting and stock buybacks fueled by cheap debt.
But this is the very point on which I have been pushing so hard for what, six years now? There is nothing wrong with stimulus, but stimulus for its own sake being pushed top down into a largely unreformed financial system is a willful kind of policy error, with its foundations in an insular world view, if not a collective madness that takes its unfortunate victims over the abyss.
And the great majority of economists have been on board with this latest financial folly, either through active rationalization or timid acquiescence. Professions that are build on powerful connections and 'reputations' often degenerate into a stubborn sort of self-referential herd mentality.
Let's not talk around this, or expend too many words on it.
This is nuts.
Stocks were sagging after the expected revision of the 1Q GDP to a contraction, which is what we said when the first 'positive' reading came out a month or so ago. Ho hum.
So now we are 'looking forward' and the Chicago PMI, which is a reasonably current number, missed by a mile, and threw cold water all over this anomaly story for 1Q's slump.
And given the track record of the American ruling elite, I have little doubt they will keep doing the same things until they crash the financial system for the third time in less than twenty years.
And they will recklessly view this as just 'another opportunity.'
Have a pleasant weekend.
