have already been laid out, but for now it’s useful to digress somewhat into the traditional arguments spread by the news media for the why behind modern market exuberance. Most notably, more than a few market watchers point to the various “quantitative easing” (“QE”) programs engineered by the Fed as the source of easy returns since 2009. It might sound compelling at first glance, but such a view ignores how the Bank of Japan has conducted somewhere north of 11 QE programs since the 1990s (really, who’s counting at this point?), but its Nikkei 225 is still well shy of all-time market highs reached in 1989. What has been written so far is hopefully a reminder that natural recessions and market corrections are signals of progress rather than scenarios we should fear. They’re very often indicators that good is being replaced with great . Moving to Europe, the ECB has, for the most part, mimicked the Fed’s QE machinations since 2009, but with vastly smaller results. Considering the world, while the S&P 500 Index has returned nearly 400% since bottoming in 2009, the MSCI All Country World Index can claim returns roughly a quarter of the S&P’s. Let’s allow common sense to enter the equation... The Fed was able to conduct its
What has been written so far is hopefully a reminder that natural recessions and market corrections are signals of progress rather than scenarios we should fear. They’re very often indicators that good is being replaced with great . This is why we should shudder every time politicians promise to “bring back” jobs, or to fiddle with market forces that are delivering near-term pain – whereby ailing companies are allowed to fail. More realistically, economies gain strength from weakness and decline simply because they’re a sign that a much better future is being rushed into the present by lightly regarded corporations and unknown entrepreneurs that will soon be prominent.
THE FUTILITY OF THE FED
This brings me to the stock market... Supposedly its buoyancy over the last 12 years has had an artificial quality to it. To believe pundits on the Wall Street Journal ’s editorial page, the opinion page of the New York Times , and even ferociously free-market centers of thought like the Mises Institute, the Fed has been the author of the bull market in U.S. shares. Left, Right, and Center claim that when it comes to the multiyear “bull,” the Fed can take credit. But this consensus across the ideological spectrum is incorrect... Better yet, the popular view that the Fed has engineered the multiyear rally enjoyed by investors is quite literally impossible . If the Fed could prop up the markets, then there would be scant markets to prop up. The clues to the previous assertion
American Consequences
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