Federal Reserve Manipulation: Directly Buy Stocks

As the economy implodes Federal Reserve manipulation will become more brazen and desperate.

The response to economic damage from Federal Reserve manipulation is always more Federal Reserve manipulation. When the economy implodes (not if), what will the Federal Reserve do? It seems they will directly buy stock to keep prices from falling.

Ron Paul writes,

Much more significant than Yellen’s latest suggestion of a rate increase was her call for the Fed to think outside the box in developing responses to the next financial crisis. One of the outside the box ideas suggested by Yellen is increasing the Fed’s ability to intervene in markets by purchasing assets of private companies. Yellen also mentioned that the Fed could modify its inflation target.

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Of course, “modify” in the last sentence means “increase.” The Fed wants more inflation. Modifying their inflation target downward is unthinkable to Yellen. She has to continue plundering savers.

But Yellen is also suggesting buying stock. This will drive up the price (for a while) and funnel many who are desperate to get some return on their investment. Companies will be valued because their prices are boosted with fiat money, not because they are profitable. We will be dominated by “ghost companies” and “zombie corporations.”

Thus, Paul writes,

Increasing the Federal Reserve’s ability to purchase private assets will negatively impact economic growth and consumers’ well-being. This is because the Fed will use this power to keep failing companies alive, thus preventing the companies’ assets from being used to produce a good or service more highly valued by consumers.

Investors may seek out companies whose assets have been purchased by the Federal Reserve, since it is likely that Congress and federal regulators would treat these companies as “too big to fail.” Federal Reserve ownership of private companies could also strengthen the movement to force businesses to base their decisions on political, rather than economic, considerations.

Remember, this is what Yellen is suggesting after the Fed took the giant step of buying bonds. What did that do for the economy? It brought us to the point where Yellen is suggesting more radical changes because the previous radical changes are making it worse.

Nothing the Fed does actually helps the economy! Federal Reserve manipulation does just the opposite.

Joe Scudder

Joe Scudder is the "nom de plume" (or "nom de guerre") of a fifty-ish-year-old writer and stroke survivor. He lives in St Louis with his wife and still-at-home children. He has been a freelance writer and occasional political activist since the early nineties. He describes his politics as Tolkienesque.

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