Tag Archives: Federal Reserve

The Latest Lie from on-High: An “Independent Federal Reserve”, by Matthew Piepenburg

Central banks are never independent from the governments that create them. From Matthew Piepenburg at goldswitzerland.com:

Earlier in July, U.S. President Biden came away from a meeting with Fed Chairman Jerome Powell and calmly announced that in addition to inflation being “short term,” we should fear not, as Biden also “made it clear to Chairman Powell that the Fed remains independent,” but “will act as needed.”

Whewwww. Where to even begin in unpacking the lighthouse of reality behind so much verbal fog?

When it comes to market analysis, no one wants to hear political opinions within finance reports, left or right.

We get this.

Thus, rather than run the risk of offending the left, right or center, I’ll be frank in confessing my foundational view that nearly all politico’s (and Fed Chairs) have been universally comical when it comes to math, history or blunt-speak.

In short, the math, facts and warning signs rising by the hour (and outlined below) make it easy to be an equal-opportunity cynic when it comes to fiscal leadership or political “truth.”

So, let’s get back to Biden’s recent observations…

Deconstructing Biden-Speak

As for inflation being “short-term,” we’ve written ad nauseum about our stance on this fiction many times elsewhere.

But as for Biden’s declaration about the Fed being “independent,” let me wipe the coffee I just spilled on my shirt and speak plainly: That’s a lie.

First of all, if the Fed were as “independent” as Biden claims, then how can Biden be so certain they “will act as needed”?

Aren’t “independent” actors supposed to act as they, rather than the politicians, decide or “need”?

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David Stockman on the Fed’s Socialist Monetary Policies and What Comes Next

Our socialist fate was sealed when banking risk was socialized via the Federal Reserve Act. From David Stockman at internationalman.com:

Socialist central planning has been elevated to a new art form based on control of the economy from the commanding heights of finance.

Central banks were once in the money business, in the sense of securing its availability, liquidity, and stable value. But the contemporary Fed never says a peep about the place where money arises and dwells — the financial markets — while gumming endlessly about the Main Street economy and the condition of and its targets for the components and constituents of GDP.

During the last 43 years, total financial assets held by the household sector have increased by a staggering $100 trillion. And that’s just a proxy for the massive levels of bank deposits, money market funds, bonds, publicly traded shares, and private equities that flow through the warp and woof of the nation’s $21 trillion GDP.

Total Household Financial Assets, 1977–2020

The Fed spent the last 13 years capping and smothering the money market rate.

That’s socialism by any other name.

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Too much liquidity, by Alasdair Macleod

It’s as simple as supply and demand. American and British monetary authorities have created far more dollars and pounds than the world demands, so the value of those currencies can only go down against other currencies and against real assets. From Alasdair Macleod at goldmoney.com:

Yesterday, the FOMC released its June statement which only served to remind us that its members are powerless in the face of inflationary conditions. They refuse to accept the price consequences of monetary inflation, still clinging on to an increasingly untenable hope that price rises are “transitory”.

The fact of the matter is that the world is now awash with excess money, the two greatest inflationists being the Fed and the Bank of England. In the US, the Fed’s $120bn monthly QE continues to goose financial asset values, while the US Government has spent a further trillion into circulation from its general account at the Fed. This tidal wave of money threatened money market funds totalling over $4 trillion with negative rates, thereby “breaking the buck”, which is why the Fed has increased its outstanding reverse repos to $721bn.

Interest rates will have to increase far earlier than the Fed admits to stop foreigners dumping dollars, not just for commodities which have nearly doubled since March 2020, but for other currencies as well.

Welcome to the everything bubble, whipped up by American and British neo-Keynesian policy makers who are now increasingly cornered by their own monetary fallacies.

Introduction

Courtesy of the central banks, the world is enmeshed in an everything bubble. We used to be most aware of the Bank of Japan’s extraordinary money printing to corner the Japanese ETF market —but that is no longer a topic of conversation. The Bank of Japan now owns about ¥48 trillion invested in ETFs ($447bn), the most aggressive money-printing stock ramp in the style of John Law and his Mississippi bubble relative to the size of the market in modern times. But today’s monetary planners have dismissed empirical evidence of any dangers as pre-Keynesian, and therefore irrelevant.

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The ‘Woke’ Fed, by Ron Paul

Central banks are an abomination. They are even more when they set their inherently irrational policies by the lights of even more inherently irrational political standards. From Ron Paul at ronpaulinstitute.org:

President Joe Biden has ordered the Financial Stability Oversight Council to prepare a report on how the financial system can mitigate the risks related to climate change. The Financial Stability Oversight Council was created through the Dodd-Frank financial regulatory reform act and is supposed to identify and monitor excessive risk to the financial system. The council is composed of the heads of the major federal financial regulatory agencies, including the Federal Reserve.

Federal Reserve Chair Jerome Powell is no doubt pleased with Biden’s order. Powell has been pushing for the Fed to join other central banks in fighting climate change. Among the ways the Fed could try to mitigate the risks related to climate change is by using its regulatory authority to “encourage” banks to lend to “green” businesses and deny capital to “polluters.” The Fed could also use “quantitative easing” to give green industries an advantage over their non-green competitors. Another way the Fed could “fight climate change” is by committing to monetizing all federal debt created by legislation implementing the Green New Deal.

Climate change is not the only area where the Fed is embracing the agenda of the “woke.” Some Federal Reserve Banks have taken the lead in a series of events called “Racism and the Economy” that are concerned with dismantling “systemic racism.” The Fed’s commitment to ending systemic racism could lead the central bank to requiring that banks and other financial institutions further relax their lending standards for minorities. The role the Community Reinvestment Act played in the 2008 housing meltdown shows that when government forces financial institutions to give loans to otherwise unqualified applicants, the recipients of those loans often are unable to make their payments, lending to foreclosures and bankruptcies.

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Pick Your Fed Poison: Tanking Markets or Fatal Inflation? by Matthew Piepenberg

Bet on the Fed choosing fatal inflation. From Matthew Piepenberg at goldswitzerland.com:

Below we look at the dark corner in which the Fed has placed themselves and investors: A one-way path toward tanking markets or crippling inflation.

Alas: Pick your poison.

For us, the antidote is as good as gold.

More Inflation Signs

Stocks continue to gyrate nervously as the Fed continues to behave like a cornered animal trying to downplay inflation risks while paradoxically supporting a mega “everything bubble” with pro-inflationary tools.

April’s “official” CPI inflation number climbed by 4.2%, the fastest climb since 2008 and 2X the Fed’s mandate.

The Fed is claiming that’s because because COVID’s 2020 deflationary trends made such relative inflationary increases “expected,” “temporary,” and soon to be “contained.”

We’ve heard those words before…

Meanwhile, US producer prices surged by 6.2% for the same month, the highest move since 2010, as core inflation, which excludes energy and food, saw its highest move since 1981.

As for energy and food, we’ve already made it painfully clear that prices on everything from ethanol to canola and corn, or from milk, chicken wings and lean pork to beef and coffee are skyrocketing by high double digits.

Thus, in case you think inflation is still up for debate, the facts once again tell us it’s already here.

And as for inflation in the risk asset markets, that’s now as obvious as any bubble narrative.

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Fed Alert: Overnight Reverse Repo Usage Soars Above Covid Crisis Highs, by Tyler Durden

The Federal Reserves debt monetization program is leaving banks flush with reserves. (When the Fed monetizes debt, it buys the debt from banks, which increases their reserves with the central bank.) The only thing the banks can do with the reserves is lend them back to the Fed in the repo market. From Tyler Durden at zerohedge.com:

In today’s FOMC Minutes there was a brief section that received little focus amid the broader analysis of the Fed’s tapering, inflation language, yet which could be far more important in coming weeks in light of the violent move higher in overnight reverse repo usage.

This is what the Fed said in its discussion of money market rates and the Fed’s balance sheet:

Reserve balances increased further this intermeeting period to a record level of $3.9 trillion. The effective federal funds rate was steady at 7 basis points. However, amid ongoing strong demand for safe short-term investments and reduced Treasury bill supply, the Secured Overnight Financing Rate (SOFR) stood at 1 basis point throughout the period. The overnight reverse repurchase agreement (ON RRP) facility continued to effectively support policy implementation, and take-up peaked at more than $100 billion. A modest amount of trading in overnight repurchase agreement (repo) markets occurred at negative rates, although this development appeared to largely reflect technical factors. The SOMA manager noted that downward pressure on overnight rates in coming months could result in conditions that warrant consideration of a modest adjustment to administered rates and could ultimately lead to a greater share of Federal Reserve balance sheet expansion being channeled into ON RRP and other Federal Reserve liabilities. Although few survey respondents expected an adjustment to administered rates at the current meeting, more than half expected an adjustment by the end of the June  FOMC meeting.

This language confirms what we said last night when we discussed the spike in overnight reverse repo usage as part of the coming QE endgame…

… and where we quoted from former Fed staffer Zoltan Pozsar, who warned that “The heavy use of the o/n RRP facility tells us that foreign banks too are now chock-full of reserves.”

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Jim Grant: The Fed Can’t Control Inflation, from SchiffGold

It’s a comforting notion to many people, the idea that wise bureaucrats can manage something as complicated as the economy. Too bad they can’t do it. From Jim Grant at schiffgold.com:

 

Federal Reserve Chairman Jerome Powell insists inflation is “transitory.” As prices have spiked throughout the economy, Powell’s messaging has essentially been, “Move along. Nothing to see here.”

Peter Schiff has been saying the central bankers at the Fed can’t actually tell the truth about inflation because even if they acknowledge it’s a problem (and it is) they can’t do anything about it.

In a recent talk, Jim Grant, investment guru and founder of Grant’s Interest Rate Observer, echoed Peter, saying the Fed can’t control inflation.

During a webcast sponsored by State Street SPDR ETFs, Grant said he thinks “there’s a gale of inflation of all kinds in progress,” adding that he believes it will take the Fed by surprise and “overwhelm our monetary masters.” Grant said, inflation is “clear and present and will manifest itself in our everyday lives.”

That sounds like the exact opposite of Powell’s “transitory” mantra.

Peter has said that once the Fed is forced to admit that inflation isn’t transitory, it will be too late to take action. Grant made a similar prediction, saying inflation will “catch the Fed flatfooted. In response it will “prevaricate” – meaning speak or act in an evasive way. In fact, that already seems to be the central bank’s strategy.

The question is can the Fed actually control inflation. Grant doesn’t think so.

I think the Fed is under the misconception that it controls events. Sometimes, events control the Fed, and I wouldn’t be surprised if this was one of those times. The Fed thinks that not only can it control events, but it can measure them. It believes it can pinpoint the rate of inflation.”

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Fragile: Handle with Care, by Sven Henrich

The Fed is walking on egg shells trying not to say or do anything that would upset the markets and topple the house of cards. From Sven Henrich at northmantrader.com:

What a circus. I imagine there’s a big sign in every Fed building in America: Don’t drop, fragile, handle with care.

Janet Yellen, while no longer in a Fed building, committed the cardinal sin of pointing out the obvious yesterday: Rates may have to be raised in response to rising inflation.

The response sequence was as predictable as laughable:

Recognizing the market’s reaction of the unthinkable: Selling, the comments had to be caveated to immediately erase the damage of a near 3% drop in the tech sector.

Yes, this is how conditioned investors are, this is how pitifully everything is centered around policy makers where the slightest hint or thought of even just thinking about reducing the free money spigot may cause selling of equities.

And it wasn’t just Yellen coming to the rescue of her unforced error course. In the last 24 hours alone a multitude of Fed speakers coming out nearly every hour to assure markets that they either have the tools ideal with inflationary pressures or that inflationary pressures will be transitory or even moving the goalposts outright:

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Peter Schiff: The Federal Reserve Is Basically Just A Big PR Firm, by SchiffGold

How about that, the government’s central bank spouts the government’s line. From Peter Schiff at schiffgold.com:

Most people view the Federal Reserve as an important policying-making body driving the economy. But in this clip from an interview with Jay Matin at Cambridge House, Peter Schiff says the Fed’s primary role is that of a marketing firm selling the populace on bad economics and trying to convince everybody that everything is great.

Peter said he thinks a large part of the Fed’s job today is public relations and spin.

To try to create a false sense of confidence in the US economy and the US dollar.”

Peter referenced an interview he saw with former Federal Reserve Chairman Ben Bernanke. The interviewer played clips of Bernanke back in 2005 and 2006 as he claimed everything was great and there was nothing to worry about. Bernanke said there was no housing bubble and any problems in the subprime mortgage market were contained. The interviewer asked Bernanke how it felt to be so wrong.

Look, you couldn’t have been more wrong. And here you were chairman of the Federal Reserve. You had all this information. More than anyone else. Now, he didn’t say, ‘Peter Schiff was out there saying it’s a housing bubble. We’re going to have a financial crisis.’ He didn’t bring me up. But he’s basically saying, ‘You had more information than everybody, yet you were so completely wrong.’ Instead of saying, ‘Yeah, I really feel kind of dumb now that I look back. God, what was I thinking? I was so clueless,’ what Ben Bernanke said, to basically save face, his answer was, ‘Well, you know, I couldn’t exactly speak forthrightly or honestly.’ I can’t remember if he said honestly. But, ‘I couldn’t actually say what I actually thought because I was part of the administration.’ And I’m thinking, what? This is what he just said? Because the Fed is supposed to be independent.”

The former Fed chair just put a spike through the myth of central bank independence. He admitted he was toeing the line for the administration. And as Peter points out, Bernanke was basically saying he got it wrong because he wasn’t even trying to get it right.

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Willful Blindness, Societal Rift & Death of the Dollar, by Michael Lebowitz

History is replete with governments who borrowed themselves to ruin, but not one that borrowed its way to prosperity. From Michael Lebowitz at realinvestmentadvice.com:

“It was assumed, even only a decade ago, that the Fed could not just print money with abandon. It was assumed that the government could not rack up huge debt without spurring inflation and crippling debt payment costs. Both of these concerns have been thrown out the window by large numbers of thinkers. We’ve seen years of high debt and loose monetary policy, but inflation has not come.

So the restraints have been cast aside.”

– David Brooks- New York Times-  Joe Biden Is A Transformational President

Regardless of whether you agree or disagree with David’s politics, he makes an incredibly bold statement above. In no uncertain terms, he argues, massive amounts of monetary and fiscal stimulus can be employed with no consequences, no restraints.

We fear this naïve mindset is not just David Brook’s, but a rapidly growing school of thought among economists, politicians, and central bankers.  We all want unicorn-like solutions to what ails us, but the truth, grounded in history, is there is no such thing as a free lunch.

Since David shrugs off any consequences of aggressive monetary and fiscal policy, we bring them to the forefront.

Who Is Funding Stimulus?

Someone must pay for rampant Federal spending.

Ask your spouse, neighbor, or friend who that might be, and they are likely to tell you the taxpayer is on the hook. To some degree, they are correct but increasingly less so.

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