US FOMC: The World Is In The Palm Of The Hands of 12 People! US Stocks Rally on Expected FED Delay

It’s truly incredible to conceive that TWELVE people essentially have the world in the palm of their hands.

Writes Mises Institute President Jeff Deist (bold mine)

Economists, bankers, fund managers, and investors around the world are absolutely fixated on the Federal Reserve’s anticipated announcement this week, with many fearing that a rate hike could trigger more shocks like the recent Black Monday selloff.

In a world of social media and 24-hour news cycles, it’s fair to say Wednesday’s FOMC meeting in the Eccles Building has been the most widely reported and discussed central bank action in history.

But missing from the coverage is one fundamental point: “monetary policy” and bureaucratic control over interest rates is not capitalism, it is outright centralized planning.

What else can we call the orchestration of a pivotal price signal in the worldwide economy by 12 individuals sitting in one room? If one accepts the Fed’s role in setting interest rates, it’s hard to understand where and when to draw the line.

Why not prices of goods, services, and wages? If experts can determine the price of money, why can’t they determine the price of a bushel of wheat or an automobile?

When the former Soviet Union’s State Committee on Prices attempted exactly that, western capitalists scoffed. Yet we accept centralized monetary planning as part and parcel of free markets!

David Stockman explains that the Fed Funds Rate-- the overnight rate at which commercial banks trade reserves with each other for liquidity-- is the single most important price in the entire world economy:

As I always say, the money-market price, that is the Federal Funds Rate or Overnight Money or a short term treasury bill, is the most important price in all of capitalism because that determines the cost of carry, the cost of speculation and gambling. When you conduct a monetary policy that says to the speculators, to the gamblers, “come and get it,” you are guaranteed free money to carry your positions, whether you’re buying German Bonds or you’re buying the S&P 500 Stock Index or the whole array of yielding or price gaining assets that are available in the financial market. This monetary policy also sends the message that you can leverage and carry those positions for free and roll it day after day without worry because the central bank has pegged your cost and production, and in a sense has pledged on its solemn honor that it will not change without many months of warning. And that’s what this whole thing is about — changing the language and so forth. I think you have created a massive distortion in the very heart of capitalism in the financial system.

So while price fixing is illegal, when the Fed does it it’s called… capitalism.

Well, as I have been saying here: The institution called the central bank have been adapted from Marx’s 10 planks of communism.

Marx's FIFTH Plank: Centralization of credit in the hands of the state, by means of a national bank with State capital and an exclusive monopoly

So there can be NO laissez faire capitalism when money—which represents half of every transaction in the modern economy—is centrally planned and organized.

Communism in its altered or modified or refined template cannot and will not embody capitalism 

And centrally planned money always entails of the subsequent widespread burgeoning maladies that covers the politicization of subsidiary economic activities (political controls in prices, exchange rate, capital, wages, trade and other economic and financial restrictions and mandates), the gaming of the system in favor of political agents and their cronies (welfare and warfare state, state capitalism, fascism), the distortion of money and prices (boom bust cycles, hyperinflation) and its ramification; the dilution of civil liberties (border and myriad people controls).

And speaking of the distortion of money and prices

The much awaited FOMC meeting slated today has brought about a mini euphoria. US stocks have surged on expectations that the FED will move goalpost

From Marketwatch:

The broad-based stock rally, which accelerated late in the trading day, was led by a rebound in industrials, financials and health-care shares. But some market participants found it difficult to pinpoint distinct drivers behind the run-up, especially as the yield on 2-year Treasury note jumped to its highest levels in more than 4 years, suggesting that Treasury investors are bracing for a rate hike.

Treasury prices move inversely to yields and short-term notes are the most sensitive to interest-rate moves by the Fed.

Still, some attributed the sharp gains in equities as an indication that markets expect the Federal Reserve to delay interest-rate hikes at its two-day policy meeting which begins on Wednesday.

“Today’s rally is for all the wrong reasons. Retail sales were disappointing, but the market is probably interpreting it as one more sign that might force the Fed to delay interest rate hikes,” said Ryan Larson, head of equity trading at RBC Global Asset Management.

Bad news is once again good news (all charts below from Zero Hedge)

The string of yesterdays’  'bad' US economic news.

Business inventories

Industrial production

Empire Manufacturing

Retail sales

Such schadenfreude like character of current markets reveals of the chronic state of unsustainable deformation—a product of 12 people determining the price of money!