Alan Greenspan initiated the “Fed Put” back in 1987 when the stock market crashed. Now, Jerome Powell may be the buy who ends it. From Charles Hugh Smith at oftwominds.com:
Choose one, and only one: a stock market that inflates and pops in an endless series of ever-more destructive bubbles, or a real economy that is no longer in thrall to the engines of wealth inequality and speculative frenzy.
“The Fed Put”–the implicit Federal Reserve policy of bailing out the stock market as soon as it swoons by unleashing a flood of monetary stimulus–is now accepted as a guarantee not unlike financial gravity. Regardless of the bleatings of Fed officials, “everyone knows” the Fed will quickly “pivot” should the market swoon, slashing interest rates and ramping up liquidity via Quantitative Easing (QE).
Recall the definition of excess liquidity: the difference between real money growth and economic growth. The Fed juices excess liquidity not to further expansion in the real economy but to force-feed new money into the stock market and other risk assets.
The only possible result of “The Fed Put” is a credit/asset bubble, which is why we’re currently experiencing the third such monumental speculative bubble in 23 years.
“The Fed Put” is the logical endpoint of neoliberalism, which places “markets” (and thus finance) at the core of the real economy. The neoliberal fantasy is that “markets” solve all problems via the magic of “the invisible hand” and so everything becomes subservient to the gyrations of “markets.”
The second part of the fantasy is that “markets” are self-regulating, meaning there’s no need for a moral order or government regulations; the magic of markets includes a godlike ability to restrict its own motivations, i.e. greed and exploitation to maximize gains by any means available.