Investors no longer react to underlying economic health but to the anticipated actions of the Federal Reserve. Bad news signals that the Fed will likely inject money into the system to prevent a crash, making asset prices go up. This creates a perverse incentive structure.
The visible cost of regulation is paperwork and compliance hours. However, the hidden, far greater cost comes from lost productivity, deterred investment, and stifled innovation. The rule of thumb is that for every dollar spent on compliance, seven dollars of GDP are lost.
Acknowledging that the Federal Reserve and government policy consistently bail out markets and inflate asset values creates a clear, if cynical, investment thesis. Rather than fighting the system, investors should align with it by owning assets, as the "house" is set up to benefit them.
In a free market, a single bank that over-prints money faces a bank run and fails. The Federal Reserve was established as a cartel to solve this "problem" for bankers. It allows all member banks to expand the money supply in unison, propped up by government backing.
When the Fed injects liquidity via quantitative easing (QE), the money enters financial markets first, not Main Street. This benefits asset owners (the wealthy) immediately, who can spend it before inflation spreads. This process inherently widens the wealth gap.
Peter St-Onge argues that microeconomics, based on classical supply and demand, is largely true and useful for business. In contrast, he claims macroeconomics is dominated by Keynesian theory, which justifies government intervention and often functions as propaganda rather than objective science.
By freezing Russia's USD reserves, the US government signaled that dollar holdings are not politically neutral. This action, unprecedented even during the Cold War, incentivized other nations to diversify away from the dollar as a primary reserve asset, fearing similar punitive measures.
Specific market bubbles (like dot-com or AI) popping don't typically cause broad recessions. Historically, the Fed creates a boom by lowering rates, then triggers a bust by raising them to fight the resulting inflation. This cycle is the true culprit of most recessions.
The dot-com crash didn't stop internet adoption; it only decimated stock values. Similarly, an "AI winter" for investors is possible even as AI technology becomes more integrated into society. Investors should distinguish between technological adoption and market valuation.
A currency's primary value comes from its reliability for savings, not just transactions. While countries are trading less in USD, the bigger threat is the Fed's inflationary policies eroding trust in the dollar as a safe asset for central banks and individuals to hold.