The Casino Economy: Here’s How The Fed Lost Half Its Bet In 1 Week

Since the financial crisis, central banks have injected trillions of dollars into the global economy. Their goal: to offset the natural downturn from slowing demographic trends and the crushing debt loads of the greatest credit bubble in history.

The Federal Reserve alone has created $4 trillion in QE since late 2008. They tried to solve an unprecedented debt crisis by adding more debt.

A toddler can tell you how backwards that is!

It’s killed investors looking for safe, long-term yields, while empowering Wall Street and hedge funds to lever up at low costs, and bet the casino on never-ending Fed stimulus.

Likewise, corporations buy back their own stocks to increase their earnings per share. It’s bogus accountant voodoo magic. It’s got nothing to do with fundamentals like growing your business. What a novel concept.

And yet, this is the world we live in today: a world in which governments buy back their own bonds, corporations buy back their own stocks, and Wall Street lives on speculation rather than real lending and investment.

As the Fed and other central banks bought trillions of their own bonds, they drove down interest rates to encourage more borrowing and spending.

But as it turns out, they were a little late to the party.

Consumers and businesses had already over-spent and over-borrowed in the great bubble boom leading up to the financial crisis.

As David Stockman puts it, we had already reached peak debt and excess capacity by 2007. Since we can’t go any higher, there’s just one direction left: building up financial bubbles, then deflation when they inevitably burst. It’s happened every single time in history!

I’m sure Lacy Hunt would agree. He has the most astute understanding of economic history of anyone I know. Both he and Stockman are speaking at our Irrational Economic Summit next week (which you can tune in via live streaming if you didn’t get a seat for the event).