by Charles Hugh Smith
Of Two Minds
The Fed has backed itself not into a corner but to the edge of a precipice.
Though the Federal Reserve never stated its Grand Bargain explicitly, their actions have spoken louder than their predictably self-serving, obfuscatory public pronouncements. Here’s the Grand Bargain they offered institutional investors and speculators alike:
We’re taking away your low-risk, high-yield investments by slashing interest rates to near-zero, but we’re giving you endless asset bubbles as a new way to notch reliable gains. This trade-off has worked for 20 years as the Fed hyper-inflated one asset bubble after another until they finally inflated everything to precarious extremes: The Everything Bubble of 2019 that started unraveling in September 2019, long before the pandemic.
The Everything Bubble includes: stocks, housing, commercial real estate, corporate debt, junk bonds, CDOs, CLOs, bankrupt companies, phantom companies, etc. The Fed inflated all these assets bubbles as a “can’t lose” proposition for yield-starved institutions that can’t survive on low-risk 1% Treasury yields.