Contributed by Lee Adler of The Wall Street Examiner.
The Fed’s QE has been great for bubbles. Since the Fed began publishing its open market operations daily starting in 2002, we’ve been able to see the correlations of the direction of the Fed’s System Open Market Account (SOMA) with 3 stock market bubbles, plus the biggest credit and housing bubbles in history, and the creation of fake bubble jobs in 2005-2007.
When the bubbles collapsed in 2007 and 2008, the fake jobs disappeared.
The Fed has frantically tried to reflate the bubbles since 2007. It has had great success with bond prices, stock prices, and house prices. But the fake jobs haven’t come back. That’s because while asset prices have undergone massive inflation since the 2009 bottom, economic activity has merely mirrored population growth. QE has done absolutely nothing to stimulate additional economic growth. Meanwhile employers have wised up. They don’t need the fake jobs and they’re not going to hire people to fill them.
Fake bubble prices are back, but the economic activity that accompanied them the last go round isn’t. The fake bubble jobs haven’t come back. And the chances of them coming back anytime soon are pretty slim. The gravy train hit the end of the line. The institutional memory of the crash is still fresh. Businesses have found that squeezing their workers works to increase executive bonuses and to transfer wealth from labor to themselves. They’ll continue to do that until they’ve squeezed the lemon dry and the economy collapses because the vast majority of workers, not to mention the unemployed, can’t afford to buy the products and services that businesses provide. Businesses ultimately cannot survive on the sale of luxury goods to the top 7% alone.
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Wolf here: Junk bonds had a phenomenal run. With each truckload of money that the Fed delivered to the markets, valuations soared and yields plunged. Desperate investors, mauled by the Fed’s zero-interest-rate policy, took on risks no questions asked. But suddenly the feeding frenzy turned into a brutal rout – a harbinger of things to come in other markets. Read... The Day The Big Fat Junk-Bond Bubble Blew Up
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