Wednesday, November 09, 2016

Central Banks Become
The World’s Biggest Stock Speculators
John Rubino* comments on the buying of stocks by central banks - the negative implications to the financial markets, to the economy & to the overall political system .. "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 years .. Can this go on forever? There seems to be a growing assumption that the elites have finally figured out how to turn a capitalist system into a perpetual motion machine by having central banks buy up all financial assets. In this way they can set prices for everything pretty much forever, thus eliminating the business cycle and ushering in a golden age of government-guided growth and prosperity. This is classic 'peak of the cycle' thinking, and the more widespread it becomes the closer the system is to breaking down / The idea that stocks and bonds will always rise because governments will always buy them is just as widely accepted today as those previous delusions were in their time. And it’s just as crazy."
LINK HERE to the essay

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