Fremdschämen is a noun of the German language. It translates this way:
Embarrassment for those incapable of feeling embarrassment.
Today we suffer embarrassment for Mr. Jerome Powell and his fellows of the Federal Reserve…
For no action they take lowers their heads in shame… or blushes their cheeks with embarrassment.
Mr. Powell is simply in the hands of Wall Street… and on his knees to Wall Street.
Well does he know the taste of shoeblack.
Yesterday Mr. Powell got a fresh coat on his tongue. Details to follow.
But first, let us look in on his masters…
A Banner Day on Wall Street
Wall Street was in full roar today.
The Dow Jones jumped an additional 582 points. The S&P gained 58 points; the Nasdaq, 169 points of its own.
CNBC, by way of explanation:
Government number-torturers reported this morning that May retail sales jumped a record 17.7%.
The chronically erring Dow Jones survey of economists had projected a 7.7% increase.
Yet we are not surprised by the surge. April’s numbers were true abominations. But certain economic restrictions were waived in May.
A trampolining back was therefore expected.
Meantime, a medicine named dexamethasone — a widely available medicine — is evidently effective in the treatment of deathly ill coronavirus patients.
It reportedly axed hospital deaths by perhaps one-third.
Thus the market had its spree today. But it merely added to yesterday afternoon’s joys…
Powell Licks Wall Street’s Shoes
The Dow Jones had been off 762 points in early trading yesterday, quaking with coronavirus-related fear.
But then Mr. Powell sank to his knees… and tongued Wall Street’s wingtips…
For the Federal Reserve announced it intends to purchase individual corporate bonds — not merely ETFs.
By its own admission, it will:
We will not burden you with the plan’s intricacies. You need only know this:
Yesterday’s announcement “pressed the risk-on button,” as money man Bill Blain styles it…
“Central Banks Are Now de facto Guarantors of the Corporate Bond Market”
And so the free market sinks deeper into oblivion:
“Don’t think. Just buy.”
We think the proper advice might rather run this way: “Don’t buy. Just think.”
Yet we do not dispense financial advice.
Picking Winners and Losers
Our own Nomi Prins penetrates to the core of yesterday’s message. Nomi rings dead center when she says:
Thus the Federal Reserve is a referee who has taken a bribe, a butcher who thumbs the scales, a rogue, a traitor to justice.
A central banker with a conscience might lower his head in shame… and a red flush of embarrassment might stain his cheeks.
Yet Mr. Powell holds his head high and puffs his chest, proud as any peacock.
His cheeks, meantime, are pale.
Yet ours are scarlet — scarlet with embarrassment for the man incapable of embarrassment.
“From Lender of Last Resort to Stockjobber”
The Federal Reserve was originally fashioned to be the “lender of last resort.” Yet that designation is presently a cruel and mocking jest.
It has passed from lender of last resort to stockjobber.
Economist Thomas M. Humphrey is the author of Lender of Last Resort: What It Is, Whence It Came, and Why the Fed Isn’t It.
What is the proper function of the central bank, by Humphrey’s lights?
Six Mandates of Sound Central Banking
As summarized by Wikipedia, a central bank exists to:
A word of explanation, perhaps, on “penalty rates.”
The central bank should charge interest rates above the market rate.
Otherwise the central bank would be a lender of resort — not the lender of last resort.
A high rate further encourages debtors to retire their debts rapidly… to shake loose the heavy burden as soon as circumstances allowed.
Yet what does the Federal Reserve’s actual record reveal?
That is, the Federal Reserve takes sound central banking and knocks it 180 degrees out of phase.
It wars against all six mandates — and massively against Nos. 1, 2, 3, 4 and 5.
Imagine a plumber who does not patch leaks but creates leaks… a doctor who does not mend bones but cracks bones… a head shrinker who does not shrink heads but expands heads.
Now you have the flavor of it.
Yet the Federal Reserve’s professional pride is unruffled. It displays no embarrassment, no shame at a job done wrong.
In fact, it believes it is a job done right…
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