Tag Archives: central bank policy

Party While You Can – Central Bank Ready To Pop The ‘Everything’ Bubble, by Brandon Smith

A new chairperson of the Federal Reserve sets the state for a thunderous financial market crash. From Brandon Smith at alt-market.com:

Many people do not realize that America is not only entering a new year, but within the next month we will also be entering a new economic era. In early February, Janet Yellen is set to leave the Federal Reserve and be replaced by the new Fed chair nominee, Jerome Powell. Now, to be clear, the Fed chair along with the bank governors do not set central bank policy. Policy for most central banks around the world is dictated in Switzerland by the Bank for International Settlements. Fed chairmen like Janet Yellen are mere mascots implementing policy initiatives as ordered.  This is why we are now seeing supposedly separate central banking institutions around the world acting in unison, first with stimulus, then with fiscal tightening.

However, it is important to note that each new Fed chair does tend to signal a new shift in action for the central bank. For example, Alan Greenspan oversaw the low interest rate easy money phase of the Fed, which created the conditions for the derivatives and credit bubble and subsequent crash in 2008. Ben Bernanke oversaw the stimulus and bailout phase, flooding the markets with massive amounts of fiat and engineering an even larger bubble in stocks, bonds and just about every other asset except perhaps some select commodities. Janet Yellen managed the tapering phase, in which stimulus has been carefully and systematically diminished while still maintaining delusional stock market euphoria.

Now comes the era of Jerome Powell, who will oversee the last stages of fiscal tightening, the reduction of the Fed balance sheet, faster rate increases and the final implosion of the ‘everything’ bubble.

As I warned before Trump won the election in 2016, a Trump presidency would inevitably be followed by economic crisis, and this would be facilitated by the Federal Reserve pulling the plug on fiat life support measures which kept the illusion of recovery going for the past several years. It is important to note that the mainstream media is consistently referring to Jerome Powell as “Trump’s candidate” for the Fed, or “Trump’s pick” (as if the president really has much of a choice in the roster of candidates for the Fed chair). The public is being subtly conditioned to view Powell as if he is an extension of the Trump administration.

 

To continue reading: Party While You Can – Central Bank Ready To Pop The ‘Everything’ Bubble

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The Greatest Bubble Ever: Why You Better Believe It, by David Stockman

Here is David Stockman’s analysis of the US government’s spending, receipts, and the overall economy. From Stockman at davidstockmanscontracorner.com:

Part Two:

As we explained in Part 1, the most dangerous place on the planet financially is now the Wall Street casino. In the months ahead, it will become ground zero of the greatest monetary/fiscal collision in recorded history.

For the first time ever both the Fed and the US treasury will be dumping massive amounts of public debt on the bond market—upwards of $1.8 trillion between them in FY 2019 alone—and at a time which is exceedingly late in the business cycle. That double whammy of government debt supply will generate a thundering “yield shock” which, in turn, will pull the props out from under equity and other risk asset markets—-all of which have “priced-in” ultra low debt costs as far as the eye can see.

The anomalous and implicitly lethal character of this prospective clash can not be stressed enough. Ordinarily, soaring fiscal deficits occur early in the cycle. That is, during the plunge unto recession, when revenue collections drop and outlays for unemployment benefits and other welfare benefits spike; and also during the first 15-30 months of recovery, when Keynesian economists and spendthrift politicians join hands to goose the recovery—-not understanding that capitalist markets have their own regenerative powers once the excesses of bad credit, malinvestment and over-investment in inventory and labor which triggered the recession have been purged.

By contrast, the Federal deficit is now soaring at the tail end (month #102) of an aging business expansion. And the cause is not the exogenous effects of so-called automatic fiscal stabilizers associated with a macroeconomic downturn, but deliberate Washington policy decisions made by the Trumpian GOP.

During FY 2019, for example, these discretionary plunges into deficit finance include slashing revenue by $280 billion, while pumping up an already bloated baseline spending level of $4.375 trillion by another $200 billion for defense, disasters, border control, ObamaCare bailouts and domestic pork barrel of every shape and form.

These 11th hour fiscal maneuvers, in fact, are so asinine that the numbers have to be literally seen to be believed. To wit, an already weak-growth crippled revenue baseline will be cut to just $3.4 trillion, while the GOP spenders goose outlays toward the $4.6 trillion mark.

That’s right. Nine years into a business cycle expansion, the King of Debt and his unhinged GOP majority on Capitol Hill have already decided upon (an nearly implemented) the fiscal measures that will result in borrowing 26 cents on every dollar of FY 2019 spending. JM Keynes himself would be grinning with self-satisfaction.

Moreover, this foolhardy attempt to re-prime-the-pump nearly a decade after the Great Recession officially ended means that monetary policy is on its back foot like never before.

 

Bank of Canada’s Poloz Is Right to Be Worried, by Peter Diekmeyer

Canada’s central bank has had a role in the “all-everything” bubble. From Peter Diekmeyer at Sprott Money via wolfstreet.com:

Three possibilities come to mind.

Bank of Canada governor Stephen Poloz cited numerous worries plaguing the economy during his speech to Toronto’s financial elites at the prestigious Canadian Club. However, the title of Poloz’s presentation, “Three things keeping me awake at night” seemed odd, given positive recent Canadian employment, GDP and other data.

Poloz highlighted high personal debts, housing prices, cryptocurrencies and other causes for concern, along with actions that the BoC is taking to alleviate them. His implicit message was (as always) “We have things under control.” But if that’s all true, then Canada’s central bank governor should be sleeping like a baby. So, what is really keeping Mr. Poloz up at night? Three possibilities come to mind.

The Poloz Bubble

Firstly, far from just a housing bubble, Canada’s economy shows signs of being in the midst of an “everything bubble.” Bitcoin, for example, hovered near CDN $23,000 this week. Stock and bond valuations are not far behind in their relative loftiness. Worse for Poloz, who took office four years ago, his fingerprints are all over those bubble-like levels.

Canadian stock, bond and house prices were already at dizzying heights when Stephen Harper hired Poloz with the implicit expectation that he would juice up the economy, in preparation for what Canada’s then-Prime Minister knew would be a tough upcoming election.

Poloz didn’t disappoint, promptly delivering a nice Benjamin Strong-styled “coup de whiskey” to asset prices in the form of two interest rate cuts, which brought the BoC’s policy rate down to just 0.50% during the ensuing months. Although Harper lost the election, loose BoC policy continues to provide the Canadian government with free money to borrow and spend as it wishes.

Here’s Canada’s ballooning Money Supply  M2 (via Trading Economics):

More broadly, the Poloz BoC’s current policy, like that of the US Federal Reserve, is to boost asset prices even higher in the hope that the resulting wealth effect will trickle down to spur economic activity among ordinary Canadians.

To continue reading; Bank of Canada’s Poloz Is Right to Be Worried

Fed Tightens, “and so far, Nothing Has Blown Up”, by Wolf Richter

The end of the world will come on its own timetable, not the Fed’s. From Wolf Richter at wolfstreet.com:

Gundlach frets about bonds during QE unwind, rate hikes, tax cuts, and rising deficits.

“A tax cut will reduce revenue and it will grow the deficit and therefore, it will probably grow bond supply, and perhaps boost economic growth,” DoubleLine Capital CEO Jeffrey Gundlach said on an investor webcast on Tuesday. And if it does, “it is going to be bond unfriendly.”

And possibly in a big way.

It’s a “strange environment” for cutting corporate taxes as the economy is already in its eighth year of expansion, he said, according to Reuters, which reported the webcast. He reiterated his prediction that the 10-year Treasury yield could reach 6% over the next “four years or so.”

Let that sink in for a moment. The last time the 10-year Treasury yield was at 6% (on the way down) was in August 2000! Four years from now, 6% would be a two-decade high-water mark.

“I don’t think it is at all strange to think we can tack on something like 75 basis points, on average, with volatility of course, per year for the next four years or so,” he said.

The 10-year yield is currently 2.36%, and sliding, as opposed to the shorter maturities whose yields have surged: the three-month yield reached 1.30% today and the two-year yield jumped to 1.83%, the highest since September 2008.

When bond yields rise, bond prices fall by definition. The 10-year yield is still very low. But if it rises from this level to 6% over the next few years, there will be a lot of wailing and gnashing of teeth along the way by bond investors, and it’s not going to be a fun time for a bond-fund manager to navigate this environment.

To continue reading: Fed Tightens, “and so far, Nothing Has Blown Up

Bank of Japan Tapers (Quietly), QE Party Over, by Wolf Richter

The world’s major central banks are quietly withdrawing the monetary fuel for the rally in financial assets. That includes Japan’s. From Wolf Richter at wolfstreet.com:

No flashy announcement, to avoid alarming the markets.

After years of blistering asset purchases, the Bank of Japan disclosed today that it held a total of ¥521.6 trillion in assets as of November 30, including Japanese Government Bonds (JGBs), gold, corporate bonds, Japanese REITs, equity ETFs, loans, etc. That is quite a pile, so to speak. It amounts to about 96% of Japan’s GDP.

By this measure, the BOJ’s balance sheet dwarfs the Fed’s balance sheet, which amounts to 23% of US GDP. When it comes to QE, no one can hold a candle to Japan. Its holdings of JGBs alone rose to ¥443.6 trillion. Its balance sheet looks like a typical post-Financial-Crisis central-bank balance sheet on steroids (chart in trillion yen):

There a couple of differences compared to other central banks: One, the BOJ started QE long before anyone even called it “QE,” but in 2013, it really got going, and those giant moves made the prior periods of QE look minuscule. And two, the BOJ actually unwound some of its earlier QE starting in late 2005 but soon gave up on it.

Now something else has been happening: Starting in December 2016 – the month the Fed raised rates and a few months after some Fed governors started to kick around the idea publicly that QE should be unwound – the BOJ began to curtail its asset purchases.

In other words, it began to “taper.” Assets are still increasing but at a much slower rate. During peak QE – the 12-month period ending December 31, 2016 – it added ¥93.4 trillion (about $830 billion) to its balance sheet. Over the 12-month period ending November 30, 2017, it has added “only” ¥50.8 trillion to its balance sheet. Though that’s still a good chunk of money (about $450 billion), that addition is down 46%.

To continue reading: Bank of Japan Tapers (Quietly), QE Party Over

What Could Go Wrong? by James Howard Kunstler

To answer the title question: plenty. From James Howard Kunstler at kunstler.com:

Everybody and his uncle, and his uncle’s mother’s uncle, believes that the stock markets will be zooming to new record highs this week, and probably so, because it is the time of year to fatten up, just as the Thanksgiving turkeys are happily fattening up — prior to their mass slaughter.

President Trump’s new Federal Reserve chair, Jerome “Jay” Powell, “a low interest-rate kind of guy,” was obviously picked because he is Janet Yellen minus testicles, the grayest of gray go-along Fed go-fers, going about his life-long errand-boy duties in the thickets of financial lawyerdom like a bustling little rodent girdling the trunks of every living shrub on behalf of the asset-stripping business that is private equity (eight years with the Deep State-ish Carlyle Group) while subsisting on the rich insect life in the leaf litter below his busy little paws.

Powell’s contribution to the discourse of finance was his famous utterance that the lack of inflation is “kind of a mystery.” Oh, yes, indeed, a riddle wrapped in an enigma inside a mystery dropped in a doggie bag with half a pastrami sandwich. Unless you consider that all the “money” pumped out of the Fed and the world’s other central banks flows through a hose to only two destinations: the bond and stock markets, where this hot-air-like “money” inflates zeppelin-sized bubbles that have no relation to on-the-ground economies where real people have to make things and trade things.

Powell might have gone a bit further and declared contemporary finance itself “a mystery,” because it has been engineered deliberately so by the equivalent of stage magicians devising ever more astounding ruses, deceptions, and mis-directions as they enjoy sure-thing revenue streams their magic tricks generate. This is vulgarly known as “the rich getting richer.” The catch is, they’re getting richer on revenue streams of pure air, and there is a lot of perilous distance between the air they’re suspended in and the hard ground below.

Powell noted that the economy is growing robustly and unemployment is supernaturally low. Like his colleagues and auditors in the investment banking community, he’s just making this shit up. As the late Joseph Goebbels used to say describing his misinformation technique, if you’re going to lie, make sure it’s a whopper.

To continue reading: What Could Go Wrong?

Boobs On Credit, by Jim Quinn

Jim Quinn examines the credit boom and warns of the potential consequences. From Quinn at theburningplatform.com:

Do you ever hear something so startlingly mind numbingly ridiculous you realize it must be a sign things have gotten so fucked up something has got to give? As I was driving to work yesterday morning on the Schuylkill Expressway a commercial comes on the radio from a plastic surgeon advertising for anyone looking for a better set of boobs. I had never heard a plastic surgeon commercial before, so I thought that was unusual. But, that wasn’t the best part. This plastic surgeon was offering no money down 18 month interest free financing on your new boobs.

I wonder if they are moving boobs with subprime debt the same way the auto companies have used subprime debt to move cars. Of course, when a deadbeat defaults on an auto loan the car is easily repossessed. What happens when a bimbo defaults on her boob loan? How narrow minded of me. What happens when some dude who wants to be a bimbo defaults on his/her loan? I guess it was just a matter of time before breast enhancement met debt enhancement in this warped world of materialism, narcissism, financialization, and delusions.

Now that revolving credit has reached a new all-time high of $1 trillion and total consumer debt outstanding has exceeded it’s 2008 peak at $12.8 trillion, the Fed has completed its job of helping the average American again in-debt themselves up to their eyeballs. This is considered a success story in this twisted, perverted, bizarro world we call America today. The solution to an epic debt induced global financial catastrophe caused by Federal Reserve easy money, Wall Street fraud, and Washington DC corruption has been to increase global debt by 50% since 2007, with virtually all of it created by central bankers and the governments they control.

To continue reading: Boobs On Credit