Both are controlled by interest rates and money supply. Equities and startups can't be funded with a lack of cheap money. The Fed balance sheet mostly carries funding at ultra cheap levels. The current interest rates have nothing to do with that. Unless the Fed drains the system that cheap money is still gonna be around for years and will prevent any major equity market sell off. The biggest fear of private equity are not higher interest rates. It's that the Fed shrinks its balance sheet. This would also shore up the balance sheets of banks who invested in bonds that are currently in the red. That the Fed does not aggressively shrink the balance sheet is only a testimony to its collusion with private equity and billionaire investors.
The Money Supply Has Shrunk For Eight Months In a Row
- Thread starter Q.E.D.
- Start date
Although what you post is applicable in part at least to other times , other situations, it is not applicable to today's U.S. economy. Our recent inflation was due primarily to externalities augmented by fiscal measures. The Fed played only a minor role as it was slow to recognize what would be the effect of the governments fiscal actions, and was correspondingly slow to react. The Fed did come around eventually.
It is also important to recognize the Fed normally influences the money supply only indirectly via monetary policy. We are the ones directly in charge via our waxing and waning demand for credit. Of course the Fed influences us, or at least attempts to, via interest rates.
Much of the time we are like petulant children. We want what we want when we what it. But when interest rates reach high or low extremes we may improve our behavior. It's like being made to go to bed early with no more ice cream. Or said another way, it is like "Taking the punch bowl away."
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Hmm, can't disagree more. The Fed has a few core functions. To MANAGE monetary policy (not to react to demand for and supply of credit). To supervise banks. Maintain financial stability, indirectly to maintain inflation at a manageable level. At all of those it has spectacularly failed. Utterly failed. The biggest problem in the US today is the myriad of regulators and supervisory bodies, each of which passes the buck to the next and in the end nothing gets done. The US should have regulated cryptos a long time ago. Instead it is a total chaos and nobody knows where the train is going. Fed has failed to stem the rising inflation tide mainly because it reacted WAY TOO LATE. It should have done what it has done in mid 2022 early 2021. It also failed to supervise banks and to ensure that midsized banks don't take on overly large risks and expose depositors to risk of default. It failed at that also and instead made tax payers become creditors of midsize bank balance sheets through its backstop. Tell us how the Fed was not directly responsible for all the above mishaps.
The Fed can't be blamed for everything that goes wrong in an economy. But it must be held accountable for failing to execute its mandate. What you are doing is excusing the Fed and give it a free pass. Such attitude is exactly what got us where we are today. Nobody holds the SEC responsible. Nobody holds law enforcement responsible for never incarcerating white collar criminals but letting them off the hook with a slap on the hand. Nobody holds the administration responsible for ever further destroying relationships with China (its ridiculous by the administration to argue that the current ban of American investments in the Chinese economy is safeguarding national security but that it does not tangent economic and trade policy). And lastly, nobody holds fed responsible for failing to manage and execute its clearly defined mandate.
The Fed can't be blamed for everything that goes wrong in an economy. But it must be held accountable for failing to execute its mandate. What you are doing is excusing the Fed and give it a free pass. Such attitude is exactly what got us where we are today. Nobody holds the SEC responsible. Nobody holds law enforcement responsible for never incarcerating white collar criminals but letting them off the hook with a slap on the hand. Nobody holds the administration responsible for ever further destroying relationships with China (its ridiculous by the administration to argue that the current ban of American investments in the Chinese economy is safeguarding national security but that it does not tangent economic and trade policy). And lastly, nobody holds fed responsible for failing to manage and execute its clearly defined mandate.