Central Banks Wage War on Markets: Bill Bonner Says They Will Lose; Fed Up Yet?

Daily Reckoning founder Bill Bonner thinks central banks are waging war on the markets. He also believes they will lose.

by Mish

I wholeheartedly agree with Bonner’s rationale. Let’s tune in.

This is a guest post courtesy of Bill Bonner and the Daily Reckoning.

Why the Feds Will Lose Their War on the Markets

The markets continue to dawdle. Not much conviction in either direction.

We’ve already looked at the War on Poverty, the War on Drugs and the War on Terror.

So let’s move on…using our new lens to look at another of the feds’ fake wars.

Dirty War

No war was ever officially declared against the markets.

But for four decades the feds conducted covert operations…a dirty war in which they’ve tried to mislead, obstruct, and suppress market forces.

They used fake money, fake savings, and fake interest rates to confuse investors, businesses, and consumers.

They didn’t say so directly, but their purpose was to give out false signals so that people would change their behaviour.

‘Demand’ was too weak, they said. What to do about it?

They flooded the system with phony savings (credit).

Price signals were distorted. Credit limits seemed to disappear. Debt limits were eased.

Then, in 2008, the war turned hot…with the feds actively and overtly holding down interest rates to push up stock and bond prices.

In response to the crisis they caused — by encouraging too much debt in the housing sector — they claimed that the ‘free market’ had failed.

They were just responding to the ‘emergency’, they said.

Soon, everybody got in on the act — expressing an opinion about how high (or low) interest rates should be.

Force and fraud

Believe it or not, an activist group called ‘Fed Up’ argues that raising rates is…you guessed it…racist!

Institutional Investor magazine reports that a group funded by 32-year-old Facebook cofounder Dustin Moskovitz is lobbying against rate increases on the grounds that higher rates are bad for US workers. From the website:

The truth about the economy is obvious to most of us: not enough jobs, not enough hours, and not enough pay — particularly in communities of color and among young workers.

Some members of the Federal Reserve think that the economy has recovered. They want to raise interest rates to slow down job growth and prevent wages from rising faster. That’s a terrible idea.

We stand with millions of workers and their families in calling on the Federal Reserve to adopt pro-worker policies for the rest of us. The Fed can keep interest rates low, give the economy a fair chance to recover, and prioritize full employment and rising wages.

What? Who are these people? Do they have tails? Horns?

They’re right about one thing: When the Fed tries to control the economy, it is politics, not markets, at work.

Markets work by persuasion and voluntary exchange. Politics works on force and fraud. Fed Up is a political organisation trying to influence how the force and fraud is applied.

But let’s look at the feds’ War on Markets through our now-familiar scope.

Victory is impossible

First, is this a war the feds can win?

No. Of course not.

Markets can be suppressed, delayed, and denied…but never eliminated.

Markets do not stop working just because you try to bend, distort, and even outlaw them. Victory is impossible.

The market for drugs does not stop just because the feds make them illegal. Instead, they reprice illegal drugs, taking into account the increased cost of doing business.

Nor does poverty disappear just because the feds make war on it.

The poor will always be with you,’ said Jesus, wisely.

Wealth and poverty are relative; there will always be some rich and some poor. Passing laws will not change that.

And ‘terrorism’?

Those who do not have access to conventional armies always resort to unorthodox attacks.

That’s what American colonists did when they launched their war against the British in 1775.

It’s what the Jews did when they launched their ‘insurgency’ against the British in Palestine in 1939.

And it’s what the Maquis did during the occupation of France by the Nazis during the Second World War.

Terror won’t stop any time soon. Nor will markets cease to function.

Bubbles, bankruptcies, and misery

Second, does the enemy gain strength from the ‘war’ against it?

Well, yes and no.

Markets work perfectly well whether you make war on them or not. Governments can put any price on anything they want. But only markets can tell you what they are worth.

Just look at what happened in the Soviet Union. Or China, pre-1979. Or Venezuela.

Who bought anything from China when the communists were setting prices?

Who goes to Venezuela to do his shopping today?

We visited Russia soon after the Soviet Union was disbanded. Markets were just opening up. But after 70 years of price fixing, there was almost nothing to buy. Almost everything that was being sold had been pilfered from the army. We bought a pair of boots for $1.00. We still have them. The soles are so stiff they barely bend.

There are really only two types of economies — command economies and market economies. The latter work for everyone — but you never know who the real winners will be. The former work only for the commanders. Then, when they have stolen everything there was to steal, markets reassert themselves.

Economies are price-discovering, information-generating learning systems. On the world market, every economy has access to the same resources, more or less. It’s what you do with them that counts.

Dictating prices is like teaching students that Japan won the Second World War…or saying that two plus two equals five…or rounding off Pi to three just to make it easier to remember.

But the more fake information you give out, the more valuable real information becomes.

A war the feds will ultimately lose

Third, did it create a new, corrupt Deep State industry? And fourth, do the combatants on both sides gain as the public loses?

Not exactly.

This is different from other ‘wars’ announced by the Deep State. This is how the insiders fund their other wars…and how they shift trillions of dollars from the public to themselves.

The War on Markets distorted almost all industries and corrupted the entire economy.

As reported here many times, suppressed interest rates alone probably cost savers as much as $10 trillion since 2008. Goosing up asset prices probably shifted another $10 trillion or so to the people who own them (typically, the elite).

As in all of these fake wars, the casus belli is phony.

Markets do not hurt people; they help them. Price signals, set by markets, are essential. Otherwise, you don’t know whether you’re adding wealth or subtracting it.

Trying to suppress free markets or abolish them always leads to confusion, bubbles, bankruptcies, and misery. Economies weaken; people grow poorer.

Since 2008, wages have been stagnant or falling for most people…GDP growth has declined and is now probably negative…productivity growth has declined more than any time in the last 40 years…world trade levels are back to 2009 levels…and the bounce-back from the Great Recession was the weakest on record.

For now, the war serves its real purpose: to increase the power and wealth of the Deep State insiders.

But it is a war that the feds will ultimately lose.

Trying to suppress markets is like putting a giant cork in the mouth of a volcano. It doesn’t stop the eruption; it just makes it more violent.


Bill Bonner,
For The Daily Reckoning, Australia

End Bonner – Mish Start – Fed Up

Let’s start with three truths by Bonner.

  1. Markets work by voluntary exchange.
  2. Politics works by force and fraud.
  3. Fed Up is a political organisation trying to influence how the force and fraud is applied.

Cockroach Theory

I wrote about Fed Up on August 23, in Is it Possible to Overhaul Cockroaches?

A People’s Fed
Andrew Levin [Fed Up founder] proposes a “People’s Fed“.
Problem of Control

Levin notes the Fed is unique in that it is a mostly-private enterprise. Fair enough. But do we really want our model to be similar to the pathetic performance of the bank of Japan or the EU?

Conflict of Interest

On the surface, that’s clearly a problem but would making the Fed public change anything?

This brings us to point number three of Levin’s misguided plan.

No Voice

Diversity for Diversity’s Sake

Diversity for the sake of diversity is pure nonsense. Black, white, red, or Latino makes no difference at all. The problem is group think, not race.

Every person at the Fed (central banks in general) has been trained in the same kind of Keynesian and monetarist thinking.

If “Fed Up” really wanted diversity it would seek diversity in thinking, not diversity in skin color.

Along those lines, one might propose Zero Hedge, Peter Schiff, or me. That would bring diversity to the group for sure. But that’s not the answer either.

My Proposal

While pissing and moaning about what is broken, Levin never explained why we need a Fed at all.

So why we need one?

The Fed, The ECB, the Bank of Japan, the Reserve Bank of Australia, etc., all have a proven track record of blowing bubble after bubble.

If we did not have a Fed, it wouldn’t be beholden to Goldman Sachs. And it would be as diverse as the free market. Nothing is more diverse than that.

Yet, diversity cannot and will not fix that problem because diversity is not the key problem.

The key problem is the central bank coupled with a Fiat credit system that can be expanded by central banks at will, in direct response to government deficit spending.

Two Way Political Stunt

Fed Up is nothing but a collection of self-serving opportunists who actually understand markets even less than the Fed, quite an achievement actually.

Yet, ahead of the last Jackson Hole meeting, the Fed did meet with Fed Up.

At that meeting, the Fed pretended to care what Fed Up had to say, and Fed Uppretended to believe the meeting accomplished something.

We need neither Fed Up, nor the Fed. We should all be fed up, with the Fed and with the charlatans at Fed Up, a tax free foundation whose entire premise is complete foolishness other than pad the pockets of its creators.

Fed Up preys on the very people it purportedly seeks to help.

Mike “Mish” Shedlock