Yes, as we pointed out last week, the Fed has turned investors – both public and private – into active shooters.
In the private sector, they're wasting their ammunition firing away at the Doge... NFTs... SPACs... Tesla... MicroStrategy... GameStop... celebrity sneakers, and other attractive nuisances.
And in the public sector, they're spending trillions on "investments" that are nothing more than boondoggles, bamboozles, and bribes.
Together, they're whacking real investment in real businesses that satisfy real customers and add real wealth to the society.
And here, we offer a single sentence to explain the decline and fall of civilizations: The more time, energy, and resources you spend on things that don't matter, the less you have available for those that do.
So when the Robinhood traders are chasing after the Doge, they're not learning electrical engineering, building houses, or investing in companies that add useful products and services.
Likewise, when the feds announce new programs to redirect $4 trillion down their favorite rabbit holes, they're going to waste a big part of the nation's wealth.
And if trigger-happy "investors" get word of any slowdown in money-printing... public or private... they'll go on a rampage.
Legendary investor Stanley Druckenmiller and his colleague Christian Broda, in this op-ed in yesterday's WSJ, The Fed Is Playing With Fire, called on the Federal Reserve to tighten monetary policy and raise interest rates. Excerpt:
With Covid uncertainty receding fast, and several quarters deep into the strongest recovery from any postwar recession, the Federal Reserve's guidance continues to be the most accommodative on record, by a mile. Keeping emergency settings after the emergency has passed carries bigger risks for the Fed than missing its inflation target by a few decimal points. It's time for a change.
The American economy is back to prerecession levels of gross domestic product and the unemployment rate has recovered 70% of the initial pandemic hit in only six months, four times as fast as in a typical recession.
Normally at this stage of a recovery, the Fed would be planning its first rate hike. This time the Fed is telling markets that the first hike will happen in 32 months, two and a half years later than normal. In addition, the Fed continues to buy $40 billion a month in mortgages even as housing is clearly running out of supply. And the central bank still isn't even thinking about ending $120 billion a month of bond purchases.
Not only is the recovery happening at record speed, excesses of fiscal policy are already visible. Consumers are spending like never before, construction is booming, and labor shortages are ubiquitous, thanks to direct government transfers. Two-thirds of all relief checks were sent after the vaccines were proved effective and the recovery was accelerating. Opportunistic politicians didn't let the pandemic go to waste. Especially after the Trump years, Congress has decided to satisfy its long list of unmet desires.
Isn't the Fed's independence supposed to act as a counterbalance to these political whims?
The emergency conditions are behind us. Inflation is already at historical averages. Serious economists soundly rejected price controls 40 years ago. Yet the Fed regularly distorts the most important price of all – long-term interest rates. This behavior is risky, for both the economy at large and the Fed itself.
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