A new study by the OMFIF discloses that the world’s central banks are buying stocks. So, there you have it. The well known correlation between Federal Reserve easing and stock market highs is now proved to be cause and effect. The references on their home page are illustrative:
- FT finds irony in central banks’ yield hunt
- Central banks fueling equity bubble
- Central banks switch to equities for diversification
One weakness of the OMFIF report is that it lumps sovereign wealth funds in with central banks. The former may buy what they like – they don’t have the authority to print money. Central banks playing in the stock market are quite another thing.
A central bank, like the Fed, is the ultimate deep-pocket manipulator. They have an infinite capacity to bid prices up, and they have insider knowledge when easing will end. It is simply unbelievable that this activity is legal.
The justification, of course, is the good of (some) national economy. We are reminded of Lenin in this connection. Indeed:
Asset managers may face efforts to influence their investments in areas like infrastructure or social security systems. Public investors of all categories may be called upon to take part in global and regional safety nets.
Not content with the stock market bubble, central banks are now encouraged to funnel newly printed funds directly into government programs. That’s moar better.