Yesterday the FOMC enacted no new policy, but through its rhetoric was widely interpreted as ready to yield to Wall Street and White House demands for easier monetary policy. Financial media headlines breathlessly trumpeted the arrival of the Great Pivot.
Ostensibly trillions of value were added to global asset markets. But how could that be? Did trillions worth of new goods and services materialize in the couple of hours between the FOMC announcement and the close of trading on Wall Street?
No one has made such a preposterous claim. That countless hours of professional plumbing and electrical services, medical services, truck driving hours, acres of fertile farmland, apartments for rent … you get the point … sprung into existence upon mere words from a committee of central planners. Because the body of goods and services around the world was unchanged, no new purchasing power can have been created. Yet there can be no question that the average share of stock and bond certificate – collectively many trillions worth – gained in purchasing power. These gains must have come at the expense of losses elsewhere.
What other claims on goods and services are there? Currencies. Notably the one issued by the US Federal Reserve: the dollar. It lost purchasing power not only against stocks as bonds, but against most other currencies as well.
That this loss of purchasing power is destined to become apparent in the market for consumer goods and services was unremarked upon in a financial media focused on the gain seen in stocks and bonds, owned disproportionately by the 1%. No concern was evident for the average American struggling with already realized losses in purchasing power on the heels of the last great reverse Robin Hood heist of 2020-2021.
So the absurdly ironic way of celebrating the fading of the pain of that harvest is to plant another crop.
Yesterday alone, the dollar lost purchasing power of 1.53% against US stocks, 1.44% against XS stocks, 1.18% against Treasury bonds, 1.14% against copper, 2.22% against gold, and 1.65% against crude oil. No one has said so, but does anyone really believe that bears no relationship to its losses of purchasing power against bread, eggs, houses, cars, gasoline … and so on …?
This connection is the biggest financial story of the century receiving the least coverage in the financial media. Virtually none outside of this web site.
When everything looks like it’s going up, your frame of reference is going down. I call it the Titanic Effect … standing on the deck of the Titanic remarking how the ocean is rising.
In this case the US dollar is the Titanic. Average Americans are the passengers. The Federal Reserve is the iceberg.