Tuesday, November 5, 2013

Central Bank Policy Greatest Threat To Financial Liberty

     I have learned a new way to finance my personal prosperity. My strategy is a twofold process in which I am going to endeavor from the comfort of my own home. In my kitchen, which I will call my central government, I will create debt investment instruments which I can sell to any interested investors. In my living room, which I will call my central bank, I will print my own currency, which I will then use to buy the debt investment instruments created in my kitchen. This scheme will give me a virtually unlimited supply of money which I can use for any number of spending projects as I print and borrow my way to prosperity.
     What is that you say? My scheme will not work. That due to an over-supply of my currency, it will completely collapse unless my central bank in the living room can sell the debt investment instruments they have been accumulating. And that for my central bank to pique the interest of new investors in the debt investment instruments they own they will have to offer a more attractive yield, causing my interest rates to skyrocket. This will cause money to be pulled from other areas and invested in the very attractive debt investment instruments owned by my central bank. But how could this not work? This is the exact same scheme that President Obama and Federal Reserve Chairman Bernanke told the nation would bring it prosperity and jobs?
     There is an old market adage that says, "Don't fight the Fed." Consequently, when the Federal Reserve is favoring stocks by keeping investors out of bonds with low yields, wily investors put their money to work in the stock market. This, and nothing else, is the only reason that stocks have been hitting record highs recently. It certainly has nothing to do with the fundamentals of the companies being invested in or the economy in which they operate, both showing all the signs of life of the Clintons' marital relationship. When the Fed begins to sell the bonds they have been accumulating, as they must do in order to not totally collapse the dollar, they will do so at higher yields, which will signal the end to stock favorability and the beginning of bond favorability. Or at least investors will see them as a safe haven for their money, which they will move from stocks into bonds. This is called the "risk-off" trade because investors are getting a better return in safer bonds than riskier stocks.
     In response to a question about what the Fed should do about interest rates, I remember hearing Rick Santelli, CNBC analyst and grandfather of the Tea Party movement, say that they should let the free market determine rates. Mr. Santelli knows, as did Andrew Jackson, that an all powerful central bank is a bigger threat to the liberty of this great nation than any foreign enemy. Mr. Santelli and Mr. Jackson, as well as others, understand that the economy's ability to self-correct is dependent upon its freedom to set its own metrics based on market conditions. When a central bank or a central government tries to force certain conditions on the markets and the economy, the result is less wealth-creation, less job-creation, and less prosperity for the average American.

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