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"The Fed has spent the last 15, 20 years manipulating the stock market."

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November 11, 2010 – Comments (1)

Zerohedge with the find here:

http://www.zerohedge.com/article/jeremy-grantham-fed-has-spent-last-20-years-manipulating-stock-market

"The Fed has spent the last 15, 20 years manipulating the stock market. I think they know what they do has no direct impact on the economy, the only weapon they have is the so-called wealth effect: if you can drive the market up 50%, people feel richer, they feel a little more confident, and the academics reckon they spend about 3% of that. The problem is they know very well how to stimulate the market, but they step away when the market gathers steam, and resign any responsibility for moderating a bull market that may get out of control, and I fear that the market will continue to rise, it will be continuously speculative. As a consequence you get a boom and bust... I think the Fed should settle for just controlling the money supply, not controlling the economy.












1 Comments – Post Your Own

#1) On November 11, 2010 at 3:52 PM, rfaramir (29.24) wrote:

The Fed has spent the last 97 years inflating the money supply. This doesn't "stimulate the market," it makes people less willing to hold cash, as the purchasing power of the dollars goes down as their quantity goes up. So people are pushed into putting them somewhere else. The stock market is an obvious place, into commodities is another, but you can only buy so much stuff without actually taking delivery, although precious metals are some of what people buy and some actually take delivery.

So where the money scared of being devalued goes is the stock market. It's not stimulus, it is forced investing out of fear.

People have a natural inclination to hold a certain amount (or perhaps percentage) of cash, depending on their life circumstances and subjective values. The Fed's actions induce them to alter their behavior. This is unwanted and unproductive intervention. The free market works better for all of us if it is left free.

Audit the Fed, then End it! http://mises.org/daily/3533 

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