Free Market or Fed Market?

Money Jul 8, 2022

It's been a while since my last post; I've been busy with numerous projects that show no signs of ending soon. Anyways, I'm back to share my views on the current market and what I believe will unfold in the future. Again, this is not financial advice; it's just me expressing my opinions.

Firstly, we are witnessing the impact of the Fed on a free market. Though this influence has existed for a long time, it has become increasingly evident that entire markets fluctuate based on expectations of the Fed's next actions. This is apparent in how the market rises whenever there's negative news about the economy, particularly the US economy, as it may prompt the Fed to ease or reverse its tightening measures. Conversely, the market tends to dip when positive news emerges. The Fed now plays the role of the single most influential factor in determining the market's direction.

Secondly, I believe the Fed is not genuinely attempting to curb inflation. As far as I understand, real interest rates must be positive to effectively combat inflation. I see all of this as a facade, an attempt to convey to the public that it acknowledges and is taking measures against inflation. This comes after an entire charade last year, convincing the public that inflation is transitory. I don't believe they simply misunderstood; I genuinely think they deliberately misled. Predicting the trajectory of inflation isn't challenging, and there were numerous warnings.

Thirdly, it is more likely that the Fed would prefer dealing with inflation rather than witnessing an economic freefall caused by tightening policies. I genuinely believe they will start pumping the economy again, probably before the end of this year, even if growth remains stagnant or hovers close to negative. The inflation situation may be exacerbated by governments' reluctance to cut spending—given that their influence often stems from significant spending—coupled with the distribution of inflation relief checks, which could further contribute to inflation if spending reductions are not implemented.

Fourth, I believe that if Central Bank Digital Currencies (CBDCs) manage to catch up, they will be used for the fast distribution of future inflation relief checks as the situation worsens. However, they might face challenges in competing with cryptocurrencies. Cryptocurrency wasn't introduced to eliminate the limitations of the traditional financial system but to restrict and eventually halt governments from printing money. Central banks create inequality by inflating asset prices, negatively affecting those on fixed incomes who have worked hard to secure something for their future. I believe CBDCs will inadvertently promote the adoption of crypto, as people may not perceive much difference except in value. Although CBDCs might initially generate excitement and attract a number of users, I anticipate a decline in their popularity over time.

My fear is that people will blame capitalism, even though we've moved far away from pure capitalism a long time ago. We're more socialist now, with governments and central banks saving bad companies and individuals that the market doesn't want or that are consuming more value than they are creating. I believe that keeping everyone informed and educated is what will save us.

So that's it! Let me know what you think. Have a happy life.

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