Federal Reserve foolishness coming due

All one needs to do is turn to the financial shows and get a litany of “financial experts” blaming the Federal Reserve and its coming rate hike for the recent market break.

They are incorrect.  The recent break in equity prices is not about a proposed and measly ¼ point rise in rates off of zero. 

Short term rates were between 4% and 5% in 2007 when the stock market made a then all time high of 14,000.  Hand wringing over a ¼ pt raise is curious.

The Federal Reserve’s mere hinting of a meager raise didn’t roll the Chinese stock market over to a near 50% loss, it did not make crude oil lose 60% of its price, and it didn’t make Greece and Puerto Rico go toes up.

It is not the raising of rates, but the idiocy of having rates too low for too long a period where the criticism should be directed.

The cost of borrowing was forced down to levels that prompted and promoted the creation of debt to aggregate levels nearly double that of 2007.  Wasn’t too much debt the issue, the culprit, back in 2008? 

The Federal Reserve forced everyone to the same side of the boat.  Dividend and rate of return capture became a sport in which investors eventually locked themselves into what are currently attractive rates but near historically low levels.  The “beach ball” was to be held under water by the Fed for the foreseeable future.  Stock market bulls, or salesmen for the market, were relying on just this condition to continue.

But if a dividend rate of 2% is attractive, what of a 10% drop in the stock price? 

When managed markets become unmanageable, the return to reality resembles a failed parasail.  Crude oil was the first managed market to come undone.  OPEC could not hold the prices any longer around $100 a barrel.  Japan depreciated and pumped to the Keynesian drumbeat. Then the Chinese stock market unraveled.  Measures such as prohibiting short selling and prohibiting owners of companies from selling stock either from personal accounts or via IPOs (initial public offering) were imposed.  And the Federal Reserve’s hinting at ¼ pt raise is to blame? Hardly. 

The Federal Reserve, the other central bankers around the world are none other than cartels such as OPEC attempting to maintain levels that are unsustainable in the long run.

“There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.” – Ludwig von Mises

As the saying goes, debt is future consumption denied.  Borrowing from the future to make the present as pretty as possible has run its course.

Now we must brace ourselves for the idiocy from the pundits.  We will be told that the Fed must cancel any plans for a rate increase and, in fact we should have a QE IV  (quantatative easing #4).  More of same from the theories and academicians who authored the past policies which have brought us to this point.

The David Stockmans and the others who have warned of dangerous policies from central bankers have been vindicated.  But you won’t see them being interviewed.  You will see the stock market salesmen, blaming the Federal Reserve for hinting at a ¼ pt. raise in rates.  They are incorrect, once more.