End of Capitalism; the Fed owns everything

Welcome to Modern Monetary Theory.

For those not aware MMT is the misguided answer to the question socialists are always asked. “How will you pay for it?”

MMT is the idea that government can print or digitalize as much money as needed for their socialistic plans such as Universal Basic Income (UBI).

MMT further posits that government can control society and monetary policy through credits and allowances so that allegedly inflation can somehow be managed.

Let’s look at how Federal Reserve chief Jerome Powell has embraced MMT and even had it war gamed.

When President Trump informed Powell that he was told by experts to lock down the economy due to Covid-19 the Fed chief handed Trump a playbook of what this never-before-conceived-of-idea would look like. Interesting.

In the last 8 weeks the Fed — working with Treasury Secretary Steve Mnuchin — has digitalized more money than could be physically printed in ten years.

  • The Fed and Treasury put an additional $16,500 burden on each US taxpayer and turned around and gave some lower income taxpayers a $1,200 check.
  • The Fed and Treasury also created $2.5 trillion and dispersed only $355 billion to small businesses. Where did they rest go? Look to Wall Street banks just like 2008-2009.
  • Fed is also on the hook to purchase $625 billion a week in US Treasury bonds, municipal bonds and corporate bonds.
  • At this buying rate, the Fed will own all federal, state and local public debt by September. Through the corporate debt buying binge — including junk bonds — it will own all of that available market by the end of the year.
  • The Fed has also pledged $200 billion a month to US banks to inject short-term liquidity along with backstops to Fannie Mae and Freddie Mac to buy trouble mortgages. This latter move now makes the Fed the largest landlord in the world.

So the idea of capitalism and free markets are a thing of the past. I’m pretty sure there are operations in the stock market being run out of New York Federal Reserve Bank executing trades through the largest money managers on the street.

Let’s remember the Fed has been helping Wall Street banks limp home every night since last September, when the panicked central bank began emergency cash infusions into the repo market, as banks were leery to make short-term loans to each other.

Where do we go from here is anybody’s guess as these uncharted waters — except for Fed chief Powell’s playbook — take the economy down a dark, dangerous street with no lights for guidance.

3 thoughts on “End of Capitalism; the Fed owns everything

  1. The population even in the USA is expanding relatively quickly while at the same time automation and globalization are eliminating millions of jobs. Goods and services are being produced but without employment people have no money to purchase them and robots have no income.
    As a result the ‘Banking System’ which includes the US Treasury, the Fed, and the private banks creates the necessary amount of currency to sell/provide all the goods and services.
    This is done by issuance of debts which are purchased by the ‘Banking System’. Because the volume is so high the interest rates must be very low.
    What is generally overlooked is the number of US adults ages 18+ that are unemployed, disabled, or retired which in about 152M today. This is about 20M more than are actually employed.
    Since automation is only becoming ever more intense new ways have fo be found to support the large numbers of idled adults and their children.

    Like

  2. Pingback: Federal Reserve and Treasury crowd out the small investors | Gray's Economy

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