Tag Archives: Federal Reserve policies

The Fed’s Monetary Policy Has Screwed Americans, by Lance Roberts

With free markets in debt and interest rates, it’s virtually impossible for real interest rates (the nominal rate minus the inflation rate) to remain negative for any length of time. That they have remained negative for years in both the US and Europe bodes poorly for their economies and financial markets. From Lance Roberts at realinvestmentadvice.com:

The Fed’s monetary policy has screwed Americans. Such is the basic premise of a recent Washington Times article discussing inflation. To wit:

“Do you find it odd that banks and other financial institutions provide mortgage loans to millions at an approximately 3% interest rate for 30 years, while the government reports that inflation is over 6% at an annual rate and rising? Are you frustrated that you are a responsible and prudent person who saves for a ‘rainy day’ or retirement, and your savings account only pays 1% or so interest, while inflation is many times that? Do you find it odd that the government official most responsible for inflation – Treasury Secretary and former Fed Chairman Janet Yellen – several months ago told us that inflation would be mild and transitory, neither of which has turned out to be correct? Do you suspect that she may not know what she is doing, particularly when she says that more record government spending will bring down inflation?”

There is a lot of truth in that statement. However, it is not just Janet Yellen’s fault. The problem lies directly with the Fed’s monetary policy decisions implemented since the turn of the century, and particularly, the Financial Crisis. As each bailout of the financial system occurred, yields fell along with inflationary pressures and economic growth.

Fed's Monetary Policy, The Fed’s Monetary Policy Has Screwed Americans

Of course, as discussed in “Fed Issues Stock Market Warning,” the only thing the Fed succeeded at was inflating a “valuation” bubble of epic proportions.

At 40x trailing earnings, current valuations are higher at the peak of the market in 1999.

Fed's Monetary Policy, The Fed’s Monetary Policy Has Screwed Americans

Continue reading→

Alternative Economists Were Right – the Stagflation Crisis Has Arrived, by Brandon Smith

The Fed kicked the can down the road during the last financial crisis, forestalling but not preventing the ultimate crash that’s an inevitable consequence of their policies. From Brandon Smith at theburningplatform.com:

Alternative Economists Were Right, The Stagflation Crisis Is Here

For many years now there has been a contingent of alternative economists working diligently within the liberty movement to combat disinformation being spread by the mainstream media regarding America’s true economic condition. Our efforts have focused primarily on the continued devaluation of the dollar and the forced dependence on globalism that has outsourced and eliminated most U.S. manufacturing.

The problems of devaluation and stagflation have been present since 1916 when the Federal Reserve was officially formed and given power, but the true impetus for a currency collapse and the destruction of American buying power began in 2007-2008 when the Financial Crisis was used as an excuse to allow the Fed to create trillions upon trillions in stimulus dollars for well over a decade.

The mainstream media’s claim has always been that the Fed “saved” the U.S. from imminent collapse and that the central bankers are “heroes.” After all, stock markets have mostly skyrocketed since quantitative easing (QE) was introduced during the credit crash, and stock markets are a measure of economic health, right?

Continue reading→

Stockman: A (Bad) Tale Of Two Inflations

Monetary inflation has inflated the prices of both financial assets, which is good for those who own them, and the necessities of life, which is bad for those who must pay for rent, food, medical care, utilities, and gas. From David Stockman at zerohedge.com:

Authored by David Stockman via Contra Corner blog,

Our paint by the numbers central bankers have given the notion of being literalistic a bad name. For years they pumped money like mad all the while insisting that the bogus “lowflation” numbers were making them do it. Now with the lagging measures of inflation north of 5% and the leading edge above 10%, they have insisted loudly that it’s all “transitory”.

Well, until today when Powell pulled a U-turn that would have made even Tricky Dick envious. That is, he simply declared “transitory” to be “inoperative”.

Or in the context of the Watergate scandal of the time,

“This is the operative statement. The others are inoperative.” This 1973 announcement by Richard Nixon’s press secretary, Ron Ziegler, effectively admitted to the mendacity of all previous statements issued by the White House on the Watergate scandal.

Still, we won’t believe the Fed heads have given up their lying ways until we see the whites of their eyes. What Powell actually said is they might move forward their taper end from June by a few month, implying that interest rates might then be let up off the mat thereafter.

But in the meanwhile, there is at least six month for the Fed to come up with excuses to keep on pumping money at insane rates still longer, while defaulting to one of the stupidest rationalizations for inflation to ever come down the Keynesian pike: Namely, that since the American economy was purportedly harmed badly, and presumably consumers too, with the lowflation between 2012 and 2019, current elevated readings are perforce a “catch-up” boon. That is, more inflation is good for one and all out there on the highways and byways of main street America!

Continue reading→

The Upshots of the New Housing Bubble Fiasco, by MN Gordon

When the current housing bubble pops, it won’t be as bad as the pop in 2008-2009, it will be worse. From MN Gordon at economicprism.com:

“The free market for all intents and purposes is dead in America.” – Senator Jim Bunning, September 19, 2008

House Prices Go Vertical

The epic housing bubble and bust in the mid-to-late-2000s was dreadfully disruptive for many Americans.  Some never recovered.  Now the central planners have done it again…

On Tuesday, the Federal Housing Finance Agency (FHFA) released its U.S. House Price Index (HPI) for September.  According to the FHFA HPI, U.S. house prices rose 18.5 percent from the third quarter of 2020 to the third quarter of 2021.

By comparison, consumer prices have increased 6.2 from a year ago.  That’s running hot!  But 6.2 percent consumer price inflation is nothing.  House prices have inflated nearly 3 times as much over this same period.

Here in the Los Angeles Basin, for example, things are so out of whack you have to be rich to afford a 1,200 square foot fixer upper in a modest area.  Yet the clever fellows in Washington have just the solution.

Massive house price inflation has prompted the FHFA, and the government sponsored enterprises (GSEs) it regulates, Fannie Mae and Freddie Mac, to jack up the limits of government backed loans to nearly a million bucks in some areas.

Specifically, the baseline conforming loan limit for 2022 will be $647,000, up nearly $100,000 from last year.  In higher cost areas, conforming loans are 150 percent of baseline – or $970,800.  What gives?

If you recall, ultra-low interest rates courtesy of the Federal Reserve following the dot com bubble and bust provided the initial gas for the 2000s housing bubble.  However, the housing bubble was really inflated by Fannie Mae and Freddie Mac.  The GSEs relaxed lending standards and, thus, funneled a seemingly endless supply of credit to the mortgage market.

Continue reading→

How to Fight the Investment Enemies Now Mobilizing, by MN Gordon

As an investor, what do you do if the Federal Reserve can’t bail markets out? From MN Gordon at economicprism.com:

Default averted!

That was the dispatch made by the popular press on Thursday following word there would be a short-term debt limit extension.  But was a default really averted?

Was a default averted when Nixon closed the gold window and put the world on an irredeemable paper standard?

Naturally, Wall Street didn’t bother considering the long-term effects of Washington’s policies of infinite debt – or the soft inflationary default Congress is engineering.  Instead, Wall Street did what it loves to do most; it bid up the major stock market indexes.

What a difference a week makes.  September may have been painful for stocks.  But the first week of October has been all pleasure.

Once again, Washington has a plan to keep the money spigots flowing.  It’s roughly the same plan that’s been in operation for the last 50 years.  The playbook is real simple: kick the can down the road.

Wall Street generally favors this plan.  More debt, both public and private, has loosely translated to higher stock market indexes.  And higher stock prices make everyone believe they’re getting rich.

There have been several notable episodic exceptions.  But, by and large, the rampant influx of debt based money has brought forth higher stock market indexes.

Still, this relationship is not set in stone.  What if things don’t go according to plan?  What if the recent past turns out to be much different than the near future?

What would then happen to investors?

We’ll have more on this in just a moment.  But first, some perspective is needed…

Continue reading→

Washington Idiots at Work, by David Stockman

Give people a lot of money in response to Covid and they’ll spend it. Much of what they buy will come from China, so the trade deficit soars. From David Stockman at davidstockmanscontracorner.com via lewrockwell.com:

If you don’t think Washington is populated by the world’s greatest collection of idiots, just consider some of today’s incoming data, starting with another disastrous trade report.

The trade deficit in goods for August posted at -$89.4 billion, which is nearly the worst monthly figure on record and 40% below the already huge -$63.7 billion deficit posted for the pre-Covid peak in February 2020. And, no, we are not harping here on the trade account’s tsunami of red ink out of some Trumpian affection for protectionism.

To the contrary, this is the result of stupid economics – specifically the $6 trillion bacchanalia of Covid bailouts and stimmies enacted during the last 18 months. Self-evidently, the overwhelming share of that gratuitous add-on to spending flowed into the veins of international trade and came ricocheting back in the form of a $26 billion monthly increase in the goods deficit.

Xi Jinping is surely marveling at Washington’s endless capacity to keep his Ponzi alive every time it begins to unravel, as was the case in the spring of 2020.

Indeed, the blue line in the chart has been driven for the last 30 years by the massive deficit in goods with China. The latter, in turn, provided the hard currency earnings which enabled the Red Suzerains of Beijing to build a massive industrial economy from whole-cloth on the back of $50 trillion of debt.

Continue reading→

The Fed Is Helping Facilitate Trailer Park Evictions, by Michael Maharrey

Maybe there’s some sort of fleabag apartment or hotel level between trailer park eviction and homelessness, and maybe not. From Michael Maharrey at schiffgold.com:

The Federal Reserve is helping corporate real estate investors evict poor people from mobile home parks.

NPR highlighted the growing number of mobile home part evictions. According to the report, real estate investors continue to buy up mobile home parks across the US. They then raise lot rents and fees, and evict residents who can’t pay.

As the report explains, the government makes this scheme possible with easy financing through agencies such as Fannie Mae and Freddie Mac. Here’s how it works in a nutshell.

A company raises rates and fees in a park. That makes the park more valuable. So they can now borrow more money against it, kind of like when you refi your house and get cash out of the deal. They pull out, say, $3 million, and they use that to go buy another mobile home park. And then they do that again and again. It’s a cascade of borrowed money. And often, these loans are backed by the US government. They provide very, very low-cost debt for these investors to get enough cash out to go buy additional parks. The loans have super cheap interest rates because they’re guaranteed by Fannie Mae and Freddie Mac, the government-backed entities at the heart of the US mortgage market.”

NPR gets part of the story right. In fact, it’s pretty impressive that they didn’t just pin the blame on “greedy capitalists.”

Nevertheless, the story completely misses the biggest player in this game – the Federal Reserve.

NPR asserts that the interest rates are low because the government backs the loans. That’s certainly part of the equation. But it’s the central bank that pushes interest rates to artificially low levels. And the Fed also makes it possible for these quasi-governmental agencies to continue to buy loans through its quantitative easing program.

Continue reading→

Quantitative Brainwashing, by Jeff Thomas

More important even than recognizing lies is figuring what the lies accomplish and who benefits. From Jeff Thomas at internationalman.com:

We’re all familiar with the term, “quantitative easing.” It’s described as meaning, “A monetary policy in which a central bank purchases government securities or other securities from the market in order to lower interest rates and increase the money supply.”

Well, that sounds reasonable… even beneficial. But, unfortunately, that’s not really the whole story.

When QE was implemented, the purchasing power was weak and both government and personal debt had become so great that further borrowing would not solve the problem; it would only postpone it and, in the end, exacerbate it. Effectively, QE is not a solution to an economic problem, it’s a bonus of epic proportions, given to banks by governments, at the expense of the taxpayer.

But, of course, we shouldn’t be surprised that governments have passed off a massive redistribution of wealth from the taxpayer to their pals in the banking sector with such clever terms. Governments of today have become extremely adept at creating euphemisms for their misdeeds in order to pull the wool over the eyes of the populace.

At this point, we cannot turn on the daily news without being fed a full meal of carefully- worded mumbo jumbo, designed to further overwhelm whatever small voices of truth may be out there.

Let’s put this in perspective for a moment.

Continue reading→

Dear Fed: Are You Insane? by Charles Hugh Smith

Does the Fed have to be insane to produce what’s clearly an insane monetary policy? From Charles Hugh Smith at oftwominds.com:

So sorry, America, but your central bank is certifiably insane, and it’s not going to magically work out.

History definitively shows that speculative bubbles always pop–always. Every speculative bubble mania, regardless of its supposed uniqueness–“it’s different this time”–pops. No speculative bubble has ever “reached a permanently high plateau” and then remained on the plateau for years.

So what does the Federal Reserve do? It inflates the biggest speculative bubble in modern history and then implicitly promises it will never pop. Dear Fed, are you insane? You might as well make a public pronouncement that stocks have “reached a permanently high plateau” that will be followed by a permanent ascent to ever-higher plateaus, as that is the implicit message you’ve been sending punters and pundits.

To promise a speculative mania that never ends is insane, yet that is precisely what the Fed is doing. Nothing else matters except “the Fed has our back.”

The Fed is also effectively promising that debt, leverage and wealth/income inequality will also all ascend higher forever. Once again history moots this happy story, as soaring wealth / income / political power asymmetries that serve the interests of the few at the expense of the many inevitably generate revolution or regime collapse.

Continue reading→

David Stockman on Why Money Printing Doesn’t Generate Economic Growth

How can the simple act of printing out scrip or making an electronic bookkeeping entry generate anything real, like increased productivity or real economic growth? From David Stockman at internationalman.com:

Fed stimulus

To understand the Fed’s culpability for the inflationary disaster afflicting the American economy, it is necessary to start with the Big Lie that underlies all of its destructive machinations: the claim that market capitalism gravitates toward cyclical instability, recession and chronic shortfall from its potential Full Employment path.

From this presumption, there flows an alleged requirement for continuous central bank “stimulus.” Deft action by the central banking arm of the state is purportedly needed to compensate for the inherent prosperity-retarding imperfections of the free market.

If Fed policy has actually been reducing cyclical instability and pushing the $21 trillion US economy ever closer to its Full Employment potential, then productivity growth should be rising over time commensurate with the Fed’s more aggressive deployment of its “stimulus” policies.

In this context, it should be noted that productivity growth is a purer measure of monetary policy impact than total real GDP growth. That’s because the latter is in part driven by long-run demographics and the annual growth of the labor supply.

Continue reading→