It’s Not Often I Get To Proclaim “The Fed Is Dead” Then Watch The Fed Put On The Toe Tag

The following article comes with a surprising revelation — possibly an alarming revelation — at the end. Something big is happening at the Fed — the largest movement of “cash” in history. I don’t know what to make of it, because the Fed has been completely silent about it, and the mainstream financial press has missed it entirely. Crickets.

I published this article as a Patron Post exclusively for those who kindly support me at the $5 level or above before I knew anything about the big money moves that suddenly appeared in Fed data. I found those moves right after researching for this article. Because they prove the article’s theme, I added them after publication. (Patrons may want to make sure they’ve read the latest additions.)

Because these addenda may have great importance, given the scale of monetary change and the total quite on the Fed’s part about it, I promised all readers I’d share this article later with everyone for free and write another Patron Post just for patrons, but they got it days ahead of others because they support this site. I am, however, about helping as many people as possible, so here it is.

I’ve left the article below unchanged in substance, except for the updates at the end, but you’ll grasp the importance better if you don’t jump to the ending:

When I proclaimed last spring “The Fed is Dead,” I clarified, of course, that the Fed is dead in terms of its ability to single-handedly raise the stock market or the economy. In October, a former Fed head agreed:

While not nearly as provocative as his mid-2019 op-ed, in which former NY Fed president and Goldman partner Bill Dudley urged the Fed to crash the market to prevent a Trump re-election, which had the dramatic effect of a loud fart in a crowded room as countless “serious” pundits did everything they could to avoid discussing the fact that a former Fed official admitted that the central bank is i) more powerful than the president and ii) can arbitrarily manipulate markets at will … Bill Dudley took to his favorite media outlet … and in a Bloomberg op-ed … was forced to “explain” that the Fed is not bluffing when it begs Congress to inject trillions into the economy because – you see – after a decade of the Fed doing just that and enabling the terminal political dysfunction and polarity observed in US politics, the Fed no longer can do it.

As Dudley puts it, while nocentral bank wants to admit that it’s out of firepower… unfortunately, the U.S. Federal Reserve is very near that point. This means America’s future prosperity depends more than ever on the government’s spending plans — something the president and Congress must recognize.”

Zero Hedge

That is exactly what I stated last spring when I was probably the first to starkly state “the Fed is dead” while everyone else continued to believe the Fed could still single-handedly lift stocks and stimulate the economy. A few months later, ZH joined me in laying out how dead the Fed was. Now, I’m joined by a former Fed head.

That is why we have, ever since, seen the Fed dithering about doing anything apart from a joint fiscal operation with the US government. Simply put, the Fed is not leaping at the opportunity to prove, as it demonstrated last March, that in can no longer lift the stock market in any sustainable way on its own.

After all, every time the US economy needed a quick sugar high, it was not Congress but the Fed that stepped in to inject trillions in liquidity, or cut rates, or both, and since this calmed markets, it remove all political incentive and desire to take the difficult and in most cases, unpopular political decisions that would have created a Congressional tradition of passing fiscal stimulus when the need arose, in the process helping the economy not the markets.

The path is now more difficult because the Fed must convince congress to take action by holding itself out of the game until congress does add its own force. This, we are seeing again, as the Fed remains aloof while congress now dithers over whether to pass another stimulus bill, same in size as the bailout bills that were first passed during the Great Recession.

As I noted from the start of the Fed’s efforts, over which I began this blog, and as ZH says it also noted back then …

While Dudley will never admit any of this, he at least concedes something else we have said for the past 11 years: by pulling demand from the future by cutting rates and injecting liquidity, the Fed has merely doomed the economy to even more pain in the future. Note – not the market, which is at all time highs – but the economy, as even Dudley admits. This is how Dudley hopes to convince Congress that after doing everything to push stocks up, even if it meant zero impact for the economy, it no longer can do even that:

Dudley states without equivocation,

There’s always something more that the Fed can do. It can push down longer-term interest rates by buying more Treasury and mortgage-backed securities, or by committing to keep buying for a longer period of time. It can…. But this misses a crucial point. Even if the Fed did more — much more — it would not provide much additional support to the economy.

David Stockman has also long said that for the next go-around, which is now this go-around, the Fed is out of dry powder. Dudley lays out why that is in specific detail:

Interest rates are already about as low as they can go, and financial conditions are extremely accommodative. Stock prices are high, investors are demanding very little added yield to take on credit risk, and a weak dollar is supporting U.S. exports. The rate on a 30-year mortgage stands at about 3%. If the Fed managed to push that down by another 0.5 percentage point, what difference would it make? Hardly any. The housing market is already doing very well.

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