The common assumption is that we live under a free market economy.
At least for the most part.
Capital flows generally unimpeded between bonds, stocks, cars, pencils, and Porterhouse steaks.
But anyone paying attention to markets and financial news over the last year hopefully took note of who is really behind the wheel. Day in and day out, nothing has dominated market attention and dialogue more than the Fed.
What’s up with inflation? The Fed. Anything new on interest rates? The Fed. What’s driving these stock markets? The Fed.
Heck, even Russia invading Ukraine couldn’t come close to keeping up.
This outsized influence on markets by the Fed is really nothing new. Since 2008, the Fed has taken full control of the capital markets helm. No other factor, or even host of factors, comes close to explaining the twelve-year bull market we all enjoyed through December 2021 than the Fed’s Free Money habit.
The assumption of free markets is based on a theater of shadows cast on the cave wall and it must end.
And that’s just what will happen.
The Magic Money Machine
In the half-century since 1971, when Nixon ended any semblance of dollar to gold pegging and went full fiat, the U.S. Government and Federal Reserve mastered squeezing every ounce of exorbitant privilege out of the U.S. dollar.
The SWIFT payment system, petrodollar arrangements, and the Eurodollar all came on-line in the 70s. It was also during the 70s that U.S. foreign policy took the Banana Republic script of foreign government intervention to support corporate interests with coups that backed that petrodollar arrangement with bombs.
The 80s saw banks use that system to evolve banking from its role of merely greasing the wheels of the economy to BEING the economy.
This system provided a constant bid for dollars. And the U.S. government and Federal Reserve used that bid to take all constraints off government spending. Fast forward to 2007 when the collapse of the hyper-leveraged housing sector threatened the economy, the Fed BECAME the market by printing over ten-times the dollars over the subsequent decade than it had printed in the 95 previous years of existence.
Today, the global trading block for U.S. dollars is unravelling. And the Federal Reserve as we know them is unravelling along with it.
The Bridge to Free Money
The Federal Reserve doesn’t have to end, per se. It could out-tighten the BOE, BOJ, and ECB and end up with a sound dollar system in the process.
That would mark the end of the Federal Reserve as we know them.
But that means pain. The recession (and, quite possibly depression) looming at the world’s doorstep will clear the fiat system. And it might usher in a true free market economy. One basically free of money-meddlers and the overreaching government it enables.
One can only hope.
Think Free, Be Free.
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