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(Publishing Note: Pam Martens has provided written authorization to the diarist to reproduce this post in its entirety for the benefit of the Daily Kos community.)

PBS Drops a Bombshell on the Federal Reserve’s 100th Birthday Party
By Pam Martens
Wall Street On Parade
A Citizen Guide to Wall Street
December 22, 2013
James Grant Appearing on PBS to Discuss the Power of the Federal Reserve, December 20, 2013

James Grant Appearing on PBS to Discuss the Power of the Federal Reserve,
December 20, 2013

PBS promised a “debate” this past Friday night on the “benefits and dangers” of the Federal Reserve as the Fed marks its 100 years of existence tomorrow. Instead of a debate, two famous stock market historians made the same stunning announcement – that the Fed has decided its job is to push up the stock market.

Consuela Mack’s Wealthtrack program on PBS had invited James Grant, Editor and Founder of Grant’s Interest Rate Observer, and Richard Sylla, the Henry Kaufman Professor of the History of Financial Institutions and Markets at NYU’s Stern School of Business. The opening scene for the program shows Sylla in a party hat lighting the candles on the Fed’s birthday cake while Grant snuffs them out – suggesting that Sylla would be making pro-Fed statements while Grant would take the opposing view.

What happened during the program, however, was that both men made the candid and bold accusation that the Federal Reserve, for the first time in its history, has assigned itself the job of propping up the stock market.

(Continued below)

(Continued from above)

Grant had this to say: “New thing – it is in the business of talking up the stock market…The Fed is manipulating prices, especially on Wall Street.” To another question from Mack, Grant says: “The Fed has presided over the decay of finance.”

Professor Sylla adds more fuel to the fire, stating: “The Fed seems to have, I think almost deliberately, is trying to push the stock market up. I’ve watched this stuff for 40, 50 years now and this is the first time in my memory when it seemed to be official U.S. government policy that the stock market goes up. And the Fed likes this because it thinks that when the stock market goes up, people who own stocks feel richer, they’ll go out and spend more money, and the unemployment rate will come down.” You can watch the full program here.

Richard Sylla on PBS, Discussing the Federal Reserve's Policies, December 20, 2013

Richard Sylla on PBS, Discussing the Federal Reserve's Policies,
December 20, 2013

Is it possible that the Federal Reserve, with its economic wizards and differential equations, doesn’t know that the more it props up the stock market and Wall Street, the more it is undermining Main Street and exacerbating wealth inequality in America?

As brilliantly laid bare by producer Martin Smith on another PBS program on April 23 of this year, Wall Street has become an institutionalized wealth transfer mechanism, moving the savings of the little guy into the pockets of the very rich.

The program, The Retirement Gamble, showed how if you work for 50 years and receive the typical long-term return of 7 percent on your 401(k) plan and your fees are 2 percent, almost two-thirds of your account will go to Wall Street. Under a typical 2 percent 401(k) fee structure, almost two-thirds of your working life will go toward paying obscene compensation to Wall Street; a little over one-third will benefit your family – and that’s before paying taxes on withdrawals. The dirty secret is the negative impact that Wall Street fees subtract from compounded interest over long blocks of time.

In the program, Smith pulls up a compounding calculator on his laptop. On air, he shows the viewer the results:

Smith: “Take an account with a $100,000 balance and reduce it by 2 percent a year. At the end of 50 years, that 2 percent annual charge would subtract $63,000 from your account, a loss of 63 percent, leaving you with just a little over $36,000.”

You can prove the point to yourself. Pull up a compounding calculator on line. Assume an  account with a $100,000 balance and compound it at 7 percent for 50 years. That would give you a return of $3,278,041.36. Now change the calculation to a 5 percent return (reduced by the 2 percent annual fee) for the same $100,000 over the same 50 years. That will deliver a return of $1,211,938.32. That’s a whopping difference of $2,066,103.04 – the same 63 percent reduction in value in Smith’s example.

Approximately 70 percent of Americans who have a retirement plan at their place of work have a 401(k) plan rather than a pension plan (defined benefit plan) that would deliver a fixed sum at retirement. Not everyone is paying 2 percent in 401(k) fees. Some workers are paying more and others are paying less – sometimes much less if using passively managed index mutual funds.

But the point is, by making propping up the stock market a goal of monetary policy, the myopic Federal Reserve is ignoring the fact that the majority of stock market wealth is ending up in the hands of the top 10 percent, doing very little to create jobs or stimulate the economy for the other 90 percent of Americans.

© 2013 Wall Street On Parade. Wall Street On Parade® is registered in the U.S. Patent and Trademark Office.

WallStreetOnParade.com is a public interest web site operated by Russ and Pam Martens to help the investing public better understand systemic corruption on Wall Street. Ms. Martens is a former Wall Street veteran with a background in journalism. Mr. Martens' career spanned four decades in printing and publishing management.


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James Grant & Richard Sylla - The Great Fed Debate!

Wealthtrack
YouTube.com
Published on Dec 20, 2013

Is the 100th anniversary of the creation of the Federal Reserve a cause for celebration or condemnation? Has the Fed, as Ben Bernanke said, "come full circle back to the original goal of preventing financial panics? Two financial historians, James Grant and Richard Sylla, debate the benefits and dangers of the Fed and explore its history with us. WEALTHTRACK #1026 Broadcast on December 20, 2013


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Diarist's Note: So, are Grant and Sylla speaking figuratively or literally? Does it matter? No--with acknowledged/confirmed fixing of virtually every major market in this country now ingrained in U.S. finance history over the past five years--to posit that our securities markets are not manipulated would be one of the most absurd fictions of all.


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UPDATE (12/22/13, 11:55PM EST): From Pam Martens on Thursday, concerning the market's reaction to the announcement of Fed tapering...

Why Didn’t the Stock Market Sell Off on the Fed’s Taper Announcement?
By Pam Martens
Wall Street On Parade
A Citizen Guide to Wall Street
December 19, 2013

If you’ve read that the stock market staged a big rally yesterday on the news that the Federal Reserve’s Federal Open Market Committee voted to begin to taper its bond buying program by $10 billion a month beginning in January, you’re in possession of half the news.

Here’s how the New York Times presented that half of the news: “Stocks rallied on the Fed’s move, with the Standard & Poor’s 500-share index ending up more than 1.5 percent. Investors saw the pullback as a vote of confidence in the economy.”

Investors saw no such thing. This is pure, unadulterated malarkey...
...

Dow Jones Industrial Average, Intraday Moves on December 18, 2013 from BigCharts.com

Dow Jones Industrial Average, Intraday Moves on
December 18, 2013 from BigCharts.com

...What actually happened in the stock market yesterday is the following:

The stock market did not initially rally at 2 p.m. on the Fed’s announcement – it did a bungee jump downward, as you can see on the daily chart here from BigCharts.com. That plunge is the patently normal reaction any sane market watcher would have expected after all previous hints from the Fed that it would begin tapering have sent the market into panic losses.

But by 2:03 p.m., a very strange thing was happening. The market reversed course on a dime and the Dow Jones Industrial Average was up 51 points. By 2:05 p.m., it was up 125 points. By 2:10, up 158 points. By the close of trading at 4:00 p.m., it was up 292.71 points.

The idea that the stock market took a Xanax after lunch and was in a confident, gleeful mood by mid afternoon is the stuff of tooth fairy yarns. Don’t think for one second that this was a genuine rally, that Wall Street is cheering its punch bowl being taken away, that removing $10 billion a month from speculators is chicken feed, that the onset of Fed tapering isn’t perceived on Wall Street as the horrific beginning of tightening of monetary policy.

This was no rally. This was panic short-covering...


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