Free Markets Always Win

Smith-Marx

QUESTION: Hello Martin. Recently you stated “The entire central banking system is in serious trouble. They have manipulated rates lower but fear what happens when the economic pressure forces as rise.”

In your opinion do any “free markets” exist or is the “black market” the only true free market left?

And if all “markets” are manipulated how can there be… ” Had it NOT been for the free market there would be NO check and balance.

Can you please identify one true “free market” from manipulation?

Thank you! O

ANSWER: the Free Markets are what force all manipulation attempts to fail just like Communism could not be sustained and that was an attempt to “manipulate” the economy to eliminate the business cycle. The Fed is generally accepted as being able to manipulate /control the short-term rates because they will actually lend at those rates. However, the attempt to manipulate the long-end is the QE program because the Fed does not lend long-term. Long-term rates are set by the market bid and ask (demand and supply). The Fed attempt to influence the long-end has been a disaster and while they can “manipulate” for a brief period of time, when the economy turns down again, they will be out of bullets. Their balance sheet is at $4 trillion. They cannot sell what they have without fear of driving rates higher and they will take huge losses on their portfolio, which is why they may go bankrupt in 2025 or require restructuring.

Therefore, the Free Market always provide the check and balance just as they ensured the collapse of Communism and are busy at work undermining the Socialism of the West. The long-end of the market was actually driven down in rates because of pension funds and retirement. The traditional asset allocation was at about 40% long bonds before 2007. There was so much money chasing the long-end, this is why they even created mortgage-backed securities – demand was there if rates AAA. The demand for long-term was so high, this is what truly drove rates lower as people bid for long-term paper.

So yes. There is a check and balance. Sometime this takes more than a decade to materialize for it is slow and methodical. Nonetheless, the free market always force change on every front.