The Fed’s pumping of massive amounts of cash into Primary Dealer trading accounts has been increasingly flowing into stocks. There’s been no increase in lending or private investment. It’s all about the owners of the market, the big dealers, running their high frequency trading bots to generate stock profits.
The massive flows of cash from the Fed have mostly entered the economy via massive government deficit spending, with virtually all of the cash printed by the Fed. Meanwhile banks continue to be unable to increase lending or, in recent months, to buy Treasuries. Foreign central banks continue to buy Treasuries at lower than normal rates, and less than the rates required to permanently subsidize low Treasury yields. Finally, individuals continue to be forced to cash out of their mutual funds by low investment returns and the need for cash to pay bills.
Of course, none of this matters as long as the Fed is printing and stocks are rising–until it does.
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