FEB 1, 2018
So remember when the banking system was on the verge of total collapse? When the banks didn’t have enough money to face the consequences of their own catastrophic decision making so the Fed magically created money, which it then gave them, and everything was okay again?
Yeah. It turns out there are consequences to completely and utterly fixing free markets and expressly prohibiting failure.
The chart below shows the Federal Reserve balance sheet (red line) and the quantity of newly created dollars that the recipients of those dollars, the banks, deposited at the Federal Reserve (blue line). But the green line is the quantity of newly created dollars that have "leaked" out...also known as "monetized".
The impact of $800+ billion of pure monetization from late 2014 through year end 2016 was spectacular. In the hands of the largest banks (multiplied by "conservative" leverage somewhere between 5 to 10x's) easily amounting to trillions in new cash looking for assets. A "bull market" beyond belief should not have been surprising.
Give banks an enormous windfall of free money in an environment where fixed income pays next to nothing and guess what? They’re going to find a way to put that money use. Most often in the stock market. Which will drive stock prices up, up, up, and up.
Forced, unsustainable, artificial, fiat-currency-driven, bubble-inflating demand.
ORIGINAL SOURCE: QE...The Gift That Just Kept Giving...Is Now Taking by Chris Hamilton at Economica on 1/31/18