Central banks have put themselves in a bind from which they cannot extricate themselves. From Sven Henrich at northmantrader.com:
Game over. Occam’s Razor: The simplest explanation is often the best one. Central banks will never extract themselves. Whether they ultimately end QE is besides the point. They won’t reduce their balance sheets. They can’t. Powell’s “performance” yesterday was not an accident. He’s been running on the same theme of offering absolutely zero specifics. Why? 3 reasons: 1. There are none as there is no plan. 2. To maintain flexibility and not to be held accountable or anything 3. To not upset markets.
We saw this recently when he actually got challenged on MBS and QE. He couldn’t and wouldn’t offer a rationale as to what is actually economically accomplished by it:
He doesn’t know. And why would he? There is zero precedent for this much combined liquidity from the fiscal and monetary side along with a rapid economic reopening with consumers’ pockets stuffed with free money from the government.
Sometimes the significance of events doesn’t hit you until far after the event took place. One of the hardest parts of this job is knowing when not to write about a subject and let it sink in for a bit rather than burp out the first thing that comes to mind. It also helps to spend that time considering what others say on the subject.
… what Biden did and said was quite clearly very deliberate and prepared. This is not the case of a senile President losing his focus and just spewing (defeatist) nonsense. Therefore, we must conclude that there are also those in the current US (real) power configuration who decided that Biden must follow a new, different, course or, at the very least, change rhetoric. I don’t know who/what this segment of the US power configuration is, but I submit that something has happened which forced at least a part of the US ruling class to decide that Obama’s war on Russia had failed and that a different approach was needed. At least that is the optimistic view.
I have some ideas about who actually ordered this shift in tone which has become readily apparent in the weeks since the meeting. More on that in a bit.
This summit was the signal of the major shift in policy. Kissinger is no longer the driving force intellectually for U.S. foreign policy. Divide and conquer hasn’t worked.
As Alex Mercouris brought up in my talk with him recently, the likely main offer made on Biden’s behalf by Jake Sullivan to his Russian counterpart, was to cut Russia in on the infrastructure deals in Africa if Russia would loosen ties to China. China is the new pivot for U.S. foreign policy.
If that offer was made then it was a calculated move to tell Putin that the U.S. was unserious about changing the dynamic between them. I think there was a lot more said than just this. But Putin didn’t say it directly to Biden. This summit was a ceasefire in the war against Russia, a typical move to retrench and rethink options after a major defeat. That defeat was not ginnng up a war in the Donbass. The two events are intimately connected.
Chinese imports have long kept a lid on US prices, but that’s fading. From MN Gordon at economicprism.com:
Jerome Powell might be done as a useful Federal Reserve Chairman. Not that Fed Chairs provide a use that’s of any real value. They mainly excel at destroying the wealth of wage earners and savers for the benefit of member banks.
But as Powell loses a grip on price inflation the business of supplying credit at a fixed rate of return becomes less fruitful. Consumer price inflation, as measured by the consumer price index (CPI), is rising at an annual rate of 4.2 percent. That’s well above interest rate of a 30 year fixed mortgage, which is currently 3.1 percent.
It doesn’t take much imagination to foresee a CPI over 6 percent. At that rate of price inflation, what good to the bank is a home loan that’s only paying 3 percent? This, among other reasons, is why Jay Powell is toast.
Powell, no doubt, has been going along to get along since long before he took over the reins of the Federal Reserve. He’s always done what everyone asked. He’s rapidly expanded the Fed’s balance sheet to fund massive government deficits and backstop the mortgage market.
Of course, he’s not alone. The central planners in the U.S. and abroad manufactured this price inflation through decades of mass money printing, credit market intervention, and currency devaluations. Anyone with half a brain knew the day would come when the glut of money and credit would jack up consumer prices. Quite frankly, what took so long?
This is a complex question to answer. One that’s much to intricate for us to comprehend. Still, today we attempt to unfold one wrinkle of the complexity:
How the delicate trade relationship between the U.S. and China suppressed consumer prices in the U.S. over the last three decades…and how that delicate relationship has reversed to exasperate rising consumer prices going forward.
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.
Given the copious amounts of debt the Federal Reserve has monetized, rising prices are inevitable. From Bruce Wilds at brucewilds.blogspot.com:
The monster known as inflation has been unleashed upon the world and will not easily retreat into the night. This is reflected in soaring commodity and housing prices. Due to the stupid and self-serving policies of the Fed, we are about to experience a massive shift in the way we live. Bubbling up to the surface is also the recognition the Fed has played a major role in pushing inequality higher. This means that inflation is about to devour the purchasing power of our income and the savings of those that have worked hard and saved over the years.
Over the months we have watched Fed Chairman Jerome Powell time and time again cut rates and increase the Fed’s balance sheet. This has hurt savers, forced investors into risky investments in search of yield, damaged the dollar, encouraged politicians to spend like drunken sailors, and increased inequality. The greatest wealth transfer in history has already begun and the next crisis will only accelerate the process. Sadly, the same policies that dump huge money into larger businesses because it is an easier and faster way to bolster the economy give these concerns a huge advantage over their smaller competitors.
For decades the American people have watched their incomes lag behind the cost of living. To make matters worse, the official numbers of the so-called Consumer Price Index (CPI) have been rigged to understate inflation and not to reflect the true impact it was having on our lives. Want to know where the real cost of things is going, just look at the replacement cost from recent storms and natural disasters. Currently, the government understates inflation by using a formulabased on the concept of a “constant level of satisfaction” that evolved during the first half of the 20th century in academia. This has skewed expectations and led many people to think inflation is not something they need to worry about.
There’s something seriously wrong with a monetary system that must rely on continuous obfuscation. From Robert Aro at mises.org:
On Wednesday, Federal Reserve Chair Jerome Powell showed how simple questions do not always get simple answers. When speaking to the media after the latest Federal Open Market Committee (FOMC) meeting, some difficult questions were asked. So much so, Powell had to repeat one question to himself, asking:
When will the economy be able to stand on its own feet?
He immediately followed with:
I’m not sure what the exact nature of that question is.
FOX News correspondent Edward Lawrence elaborated, asking when the Fed would lower the number of treasuries it buys, and when the economy would function “without having that support from the monetary side.”
Powell found ways to avoid answering the idea of a nation which stands without central bank supports, but he did refer to various “tests” the Fed will do in order to make decisions like shrinking the balance sheet, explaining:
we’ve articulated our test for that, as you know, and that is just we’ll continue asset purchases at this pace until we see substantial further progress.
He went on to say that prior to making any decisions, such as buying fewer treasuries, they will give the public a lot of notice beforehand.
Private savings have shrunk to virtually nothing, just when it would have been nice to have a cushion against the exploding federal deficit. From David Stockman at internationalman.com:
International Man: People have been warning of impending fiscal and monetary doom for a long time.
What is different now that will finally usher in the day of reckoning?
David Stockman: It is self-evident that the solution to a state-imposed supply-side shutdown of the economy is not more counterfeit money, erroneous price signals, inducements to rampant speculation and moral hazards, and further zombification of the main street economy.
Once upon a time, even Washington politicians feared large, chronic public debt, and not merely because they were especially intelligent or virtuous. We learned that in real time during 1981, when the deficit hawks among the GOP Senate college of cardinals nearly shut down the Gipper’s supply-side tax cuts out of fear of mushrooming deficits.
To be sure, these dudes didn’t know Maynard Keynes from Emanuel Kant, but they did know that Uncle Sam has exceedingly sharp elbows and that when he becomes too dominant in the contest for funds in the bond pits, private households and business borrowers get bloodied and crowded out.
That is to say, in the days before massive central bank monetization of the debt, there was a natural counter-balancing constituency in the equations of fiscal politics. We heard from them, too, in our congressional days when the car dealers, feed mill operators, tool and die shops, building contractors, restauranteurs and countless more main street businessmen of the Fourth Congressional District of Michigan let it be known loud and clear that Jimmy Carter’s big deficits were doing unwelcome harm to their bottom lines.
International Man: Recently, Fed Chairman Jerome Powell said the central bank’s money printing is designed to help average Americans, and not Wall Street.
What’s your take on this?
David Stockman: Yes, and if dogs could whistle, the world would be a chorus!
The truth is, in an economy encumbered with nearly $78 trillion of debt already—including $16.2 trillion on households, $16.8 trillion on business, $23 trillion on governments—the last thing we need is even lower interest rates and even bigger incentives to take on debt and leverage.
In fact, in a debt-saturated system, the Fed’s massive bond purchases never transmit anything outside the canyons of Wall Street. This money-printing madness only drives bond prices higher and cap rates lower—meaning relentless and systematic inflation of financial assets’ prices.
As a practical matter, of course, the bottom 90% don’t own enough stock or even inflated government and corporate bonds to shake a stick at. Instead, what meager savings they have accumulated languish in bank deposits, CDs or money market funds earning exactly what the Fed has decreed—nothing!
So, when Powell says he’s only trying to help the average American, you have to wonder whether he is just stupid or the greatest lying fraud yet to occupy the big chair at the Fed.
Federal Reserve chairpersons have often taken the “suggestions” of presidents to heart, but Trump and Powell’s interactions may be the most overt of them all. From Sven Heinrich at northmantrader.com:
After getting a public twitter scolding from President Trump for letting the Dow reverse into red yesterday Jay Powell was not about to let the same mistake happen twice and came fully prepared ready to jawbone today.
Is the presumption ridiculous? What isn’t ridiculous these days?
A president watching every tick on the $DJIA and grading the Fed Chair on it?
When Jerome Powell started his testimony today, the Dow was up 125, & heading higher. As he spoke it drifted steadily downward, as usual, and is now at -15. Germany & other countries get paid to borrow money. We are more prime, but Fed Rate is too high, Dollar tough on exports.
Pay no attention to those sudden emergency infusions of liquidity from the Fed; everything is perfect. From Christ Martenson at peakprosperity.com:
“When it becomes serious, you have to lie”
The recent statements from the Federal Reserve and the other major world central banks (the ECB, BoJ, BoE and PBoC) are alarming because their actions are completely out of alignment with what they’re telling us.
Their words seek to soothe us that “everything’s fine” and the global economy is doing quite well. But their behavior reflects a desperate anxiety.
Put more frankly; we’re being lied to.
Case in point: On October 4, Federal Reserve Chairman Jerome Powell publicly claimed the US economy is “in a good place”. Yet somehow, despite the US banking system already having approximately $1.5 trillion in reserves, the Fed is suddenly pumping in an additional $60 billion per month to keep things propped up.
Do drastic, urgent measures like this reflect an economy that’s “in a good place”?
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