The comments below are an edited and abridged synopsis of an article by Charles Hugh Smith
Back when prosperity was authentic, the Fed had no need for public relations. But now that prosperity is an illusion, and the Fed’s public relations pronouncements are unending as it tries to ‘manage expectations.’
That is code for ‘front-run what we say and your profits are guaranteed.’ When the Fed says it’s going after X, then simply buy whatever will benefit from X happening. As X unfolds, those who front-ran the Fed reaped billions in essentially zero-risk profits.
This is part of the Fed’s shadow nationalization of key markets. If price discovery of credit and risk is allowed to live, the Fed’s inflated speculative bubbles pop. The Fed’s job is to kill all price discovery via shadow nationalization.
An example of markets that have been shadow nationalized: The mortgage market, stock market and now the bond market.
Shadow nationalization has been the most well-promoted PR campaign in the history of central banking. The trillions of dollars in direct purchases of assets over the past 12 years has trained Wall Street/investors to buy the dip because the Fed will never let its nationalized stock market decline for more than a few weeks.
The profits from front-running are in the trillions. No wonder the Wall Street rats press the buy button—the rewards and have been reliable and immense.
The floodgates of PR, supporting the notion that the Fed will do whatever it takes to generate inflation, are open, and Wall Street has been joined by millions of retail rats front-running the Fed’s pronouncements by chasing everything that will benefit from rising inflation.
The irony is that front-running is now overheating inflation.
Once you create inflation, it breaks free and rampages through the financial empire. The Fed can claim godlike powers of yield management but shadow nationalizing the bond market won’t stop the vast misallocation of capital, or conjure creditworthy borrowers out of thin air, or enable profitable lending opportunities.
The Fed is trapped by the success of its PR. It has unleashed self-reinforcing feedback loops based on front-running Fed management of expectations, and will now have to shadow nationalize the bond market with brute force.
That will release waves of unintended consequences that will sink the Fed and the economy. Kill authentic price discovery and you also kill markets and allocation of capital and risk management, and in killing those, you kill the economy.