“Ludicrous” doesn’t adequately describe the obtuse thought processes that have put the Fed at the center of a multiyear equity run. On the other hand, greatness does... which explains the vast differentials in returns within countries around the world populated by central bankers trying to force exuberant valuations via voice and artificial rate commands. The problem for most of these economic fabulists is that they don’t “central bank” in countries with companies like Amazon, Apple, Facebook, Google, and Microsoft – the five corporations that, without, there wouldn’t be much of a stock market rally to think of. The U.S. equity boom has been a consequence of rare genius – genius that likely wouldn’t have had access to the human and physical resources necessary to take flight absent the past being pushed into the past by market forces. If the Fed were really as powerful as so many think it to be, such that it could engineer bull markets, then GE, Enron, Blockbuster, AOL, and others would still be around... using up precious resources to the detriment of much greater replacements. In other words, if the Fed could juice markets, there would be no markets to juice.
GE’s flame dimmed over time, Enron went bankrupt in 2001, Tyco flopped in 2002, Time Warner dropped AOL from its masthead in 2003, and Google floated its shares in 2004... thus bringing market heft to the end of Yahoo as a player in search. Imagine then if the Fed could actually prop up stock prices as is commonly assumed. If so, the demise of some of the U.S.’s most dominant corporations in 2000 wouldn’t have been so swift. In which case, some pretty mediocre corporations would be hogging precious resources to the certain detriment of the U.S. economy, along with the stock market that is a reflection of forward-looking investor sentiment about that economy. It cannot be stressed enough that while the failure of one or many corporations could never doom the stock market or the economy for any notable time frame, stasis would be devastating to markets. That’s because, as evidenced by the corporations and industries that dominated the U.S. economic landscape in 1850, 1950, and 2000, the unquestionable driver of economic progress has long been a replacement of the existing commercial order with mostly unexpected, and often unheard- of, new entrants. To believe the narrative about the Fed and the stock market, you would have to similarly believe average thinkers with last names like Bernanke, Yellen, and Powell not only knew how to trick markets, but also knew what companies to push into the past at the same time they knew which replacements to anoint on the way to nosebleed valuations.
John Tamny is vice president at FreedomWorks, editor at
RealClearMarkets, and author of many books. His latest is When Politicians Panicked: The New Coronavirus, Expert Opinion, and a Tragic Lapse of Reason.
American Consequences
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