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The Fed’s Rain Dance at the Bottom of the Stairs
Wolf Richter www.testosteronepit.com
Apparently, Charles Plosser, president of the Philadelphia Fed, had failed to check with his handlers when he said on CNBC this morning that the Fed might have to raise short-term interest rates later this year—from practically zero to almost zero, I guess—though just last Thursday, the Federal Open Markets Committee had announced the extension of its zero-interest-rate policy (ZIRP) through late 2014.
We’ve been getting the same song and dance from the Fed about its "highly accommodative” monetary policy and "exceptionally low" interest rates since 2009. And by now we've been programmed to believe that extensions will continue ad infinitum, despite some dissenting voices here and there. In the process, the country has become hooked on low interest rates, and even the idea of raising them, or the mere mention of it, causes bouts of painful withdrawal symptoms.
At first, the expectation was that the “exceptionally low” rates would last 6 months, but now it's been three years, and three more years have already been added to the schedule, so six years in total, and soon, it'll be 20 years, à la Japanese, which isn’t exactly the paragon of a healthy economy. While there are cosmetic differences between the two, they do share ZIRP, out-of-control budget deficits, a ballooning national debt, and a political refusal to deal with reality—aided and abetted by a central bank.
It's an ugly situation. Short-term treasury yields are at practically zero, 5-year yields hit a new all-time low of 0.71%, and even 30-year yields dipped below 3%. Savings accounts, money market funds, and short-term CDs yield just about nothing. Yet inflation was 3% in 2011. The many trillions of dollars that individuals, institutions, and countries hold in these assets are slowly being ground down by inflation, but without compensation in form of yield. Financial repression. And the largest slo-mo ripoff in the history of mankind. For more on that whole debacle, and for good laugh, read.... Dear Ben, Please Print Us More Money.
Wages have not kept up with inflation either, not since the wage peak of 2000. Every number hammers home that point.... Oh wait. Not every number. Personal income increased 0.5% in December, according to today’s report by the Bureau of Economic Analysis. This coincided with a flatish December PCE inflation indicator, giving workers the first real wage increase in many months. Last week, the Bureau of Labor Statistics reported a similar phenomenon: a rise in hourly earnings of 0.2% in December and a flat CPI. Real wages increased! A rare event that should be celebrated around the country with a good American brew.
But for the year, real wages were still down 0.9%. For production and non-supervisory workers, the lower echelons of the labor force, real wages for the year were down 1.6%. So, one month hasn’t solved the problem yet. Yet it shows the beneficial effect of taking inflation out of the equation: real wages actually rise. A few months of this, and who knows—consumers might actually buy something with this extra money without having to borrow from the future.
NO, said the Fed, panicking at the mere thought of rising real wages. There shall be no break for workers. Real wages aren’t low enough yet. And so the Fed announced an inflation target: no less than 2% as measured by its low-ball PCE inflation index. So, closer to a CPI of 3.0%. Plenty of inflation to bring down real wages and demolish entire categories of investors, but not so much as to cause a revolt—in the hope that it would stimulate the economy? It’s a rain dance at the bottom of the stairs.
They misjudged the inexplicable American consumer. Consumer optimism, an oxymoron in the current climate, has been rising from morose multi-year lows in August to levels not seen since, well, May. And it whipped hope into a froth: rising confidence would pump up spending, which would pump up everything else. But the toughest creature out there that no one has been able to subdue yet.... The Inexplicable American Consumer strikes back.
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I am collecting 0 veteran's benifits
Redistribution of the wealth to the "job creators" is what I see. I'm still waiting on my "trickle down".
Personal income growth = lol
Another great day.
see yahoo finance headline: "Fed Members Laughed As Housing Bubble Grew"
seems laughter at fed meetings peaked in 06-07..can we guess who was the butt of their jokes?
will the press turn on the FED as a way to deflect anger at the DC pols? stay tuned.
This article is about the Fed, but the comments are about our government. When I see peaceful protesters being arrested and treated like savages in this country by our police forces, I am reminded that we have been sliding into a police state since this country was founded, but most rapidly in the last 50 years. Do or say what the enforcers don't like, and we'll lock you up. Especially if it threatens our pensions. Pensions paid for by taxes, eventually to be bailed out by taxes. Taxes paid for by the people. But which people? Some paid by the bottom half, but less in federal taxes, more in sales tax. Most paid by the middle class being crushed. Largest dollars and % by the top, although smaller in % of income terms (the top make a lot of cash). So essentially, the police are owned by the elite, who also benefit most from the propped up system. Sadly, there is no (good) way out. Destroying the system with a reboot will harm those in the bottom who have grown most complacent. They get paid too much to compete with international competition, but too little to truly thrive in our economy. Then our government throws food stamps their way to prevent an uprising. To pay it all off, they make the dollar worth less. What next? The conclusion is a currency crisis where the dollar is seen as having no value. It will start with our trading partners, and end on our shores, where our dollars have no value to each other. It is already starting. This isn't a doomer rant, this is reality and we are hurtling towards it. The EuroZone fiasco is a sideshow (forestalling the loss of confidence in the dollar), which when complete, will signal the next part of the cycle. Wages will be meaningless when people are fighting in the streets for their survival.
Running Man... "When I see peaceful protesters being arrested and treated like savages in this country by our police forces, I am reminded that we have been sliding into a police state since this country was founded, but most rapidly in the last 50 years."
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You are wrong about the last fifty years being the worst for police/gov brutality.
Read Howard Zinn's "A Peoples History Of The United States" and you will find that things were a LOT worse for the first one hundred and forty years or so.
BTW, Zinn's History is still the all time best seller in American History catagory. It's been updated and is in it's umpteenth printing...and a real eye opener.
Well I'll just have to break out the party favors then! "thank God we're not 1842!"
Thanks Snidely. I will go take a look and get additional perspectives on this. Is this a reason for hope?
"Is this a reason for hope"...
No, I don't believe it is. We were very fortunate, economically, when WW2 ended and the rest of the world's manufacturing base was in ruins. The US quickly reconverted factories from arms manufacture to plant/equitment/machine/transportation manufacture. We were exporting every last item we manufactured and at prices that we named. But, the rest of the world had rebuilt their manufacturing capacity by the early sixties and began to make and export their own stuff. The US again had competition.
While the boom in the US was ongoing, and foreigners were paying what we asked for stuff, the US middle class formed and it was typical for a family of four to own a small home and an auto ... all on one workers paycheck. I can remember when a good education from an excellent state college cost about $6K...total.
These were the times of silly movies, silly sit coms, cops that didn't bother anyone unless they were obviously out of line, and the dollar was strong enough for the average American family to "see the USA in a Chevrolet" as one tv ad put it. The dollar really was strong against all other currencies and many Americans went abroad for months, staying in youth hostels, pensiones and the like. One look at the 1959 Cadillac El Dorado sort of explains it all. lol...
Now, after ~30 years of creit expansion, when Americans continued to try to live like they did in the mid fifties to early seventies, but were doing it on two paychecks plus credit cards, times have definitely changed. The credit expansion blew up with LTCM, then the dot com bubble, then the housing bubble, then the crash of a few big banks and soverigns on the verge of collapse.
Crime, which has been subdued by putting lots of people in jail, will again start to rise. People that normally would not steal will steal when they get hungry. I believe the Gov sees what is coming, otherwise why would they have passed first the Unpatriot act and now the NDAA? I'm not saying the US economy is going to fail but I am saying that the Gov is preparing for such a possibility...and, if the choice arises between holding onto power and cracking some heads arises... heads will get cracked.
Read Zinn's book... He still teaches history at Columbia (I believe it's Columbia, maybe another Ivy League school)... Anyway, it's an eye opener. Zinn didn't start out in a rich family. In fact, he was a bombadier in a B 17 in WW2... so he has some experience with war and he became curious about the serial wars in Europe. He became curious about history and his book made me curious about history.
Scragbaker politely requests for all of us to revolt,
while he continues to collect his veterans benefits ...
its no great mystery why the people of the United States are not up in arms ...
what with nearly all of them collecting Social Security, Medicare, disability checks,
SNAP, unemployment, section 8, or, if they are still working, they either work directly for Uncle Sam or else one of his contractors ....
That only works for so long as everybody continues to value and to honor the U.S. dollar ....
In reponse to "NuYaukFrankie" - I only did six years in the U.S. NAVY, three active - 1980/1986. I couldn't get out fast enough. I only mentioned my NAVY time as a way to state that I am proud of my country and that I am no free-loader. I USED TO BE PROUD of my country - I no longer am proud. I would not defend the "Autorities or the USA government under any circumstances. I want the fuckers to be driven out and hanged for treason.
you are being kind, because I can't understand why the american people aren't taking over the federal reserve they way they did during the iran hostage crisis. I am making plans to leave this country, and the further zero interest rate stuff was the olast straw. forcing you into risky assets, in a ponzi market, so the wealthy who own most of the asseets can get even more wealthy. words can't describe the anger I have at these people
you really haven't touched on what it means, it means that no matter how big he credit bubble is, the fed will always print more than the destruction of credit by malinvestmet. it means investing is almost given you will win in th elong run, shich of course tells banks and others to loeverage up[. causing financial instability.
these people are doing economic genocide on the american people
You are all a bunch of fucking pussys ! You yack yack yack your bullshit greavances in this comment section but LACK THE REAL BALLS FOR ACTION ! For if any of you had any REAL BALLS you would be at this moment organizing VERY LARGE GROUPS of PATRIOTS and you would be out in the streets with your swords and pitch forks hanging the polititions and bankers responsible for looting this country's citizens and our nations treasurey. We no longer have a nation where honesty, hard work and thrift will give one a better life. What we now have is a nation where the best odds of getting ahead lie in dishonesty, "cheating the system" (WHICH GROWS EVER MORE BURDENSOME) and scamming anyone you can. I pray every day for a revolution before I get too old to join in the cause. I am very well aware that I couild be labled an "enemy combatant" for posting this. But fuck it - I am a USA NAVY veteran, highly educated and very hard working. Here I am in my 50's and I am running harder and faster than ever before trying to keep my head above water. I have not voted since Ross Perot lost the election (all Presidents since that election have proven to be ineffectual and liers) and I turned off my TV set for good in 1996. I would gladly and with honor give my life so that my children and my grand children may have the chance for a better life. WHEN THE 'END GAME' FINALLY ARRIVES - A HYPERINFLATIONARY CRASH OF OUR NATION'S INCREASINGLY WORTHLESS CURRENCEY AND YOU PUSSYS CAN'T FIND A LOAF OF BREAD TO EAT MAYBE YOU'LL SET DOWN YOUR CELL PHONES AND IPADS, STOP WATCHING DANCING WITH THE STARS, TURN OFF HOWARD STERN, CARE LESS ABOUT THE SUPER BOWL THAN WHAT IS BEING STOLEN FROM YOU AND YOUR OFF SPRING AND GET THE BALLS TO ACTUALLY DO SOMETHING!
Thanks for your service. I am former ARMY AMEDD. In similar fashion, I have been writing in Ron Paul for about 15 years.
Talk is cheap my friend, actions matter. According to the training I recieved, you don't say anything (especially on a monitored site), you just do. One thing I think many people overlook is a military takeover in the U.S. There are many of us who are indeed working harder than ever and still very much in tune with what is going on at the Pentagon. Don't sweat it and let the soylent green fullfill their role, you'll live longer.
FYI- this is a trading site which has helped me front run a number of market moves. Hey, strenghen your resources where you can, knowledge is power and all that. hooah.
You forgot to include ZH's favorite boogie man, the evil joooooooos.
Thanks for playing.
You are all a bunch of fucking pussys !
You are what you eat!!!!!!
Seriously, when the paychecks of the goverment workers bounce, then it is time for end game action.
Scragbaker... "You are all a bunch of fucking pussys ! You yack yack yack your bullshit greavances in this comment section but LACK THE REAL BALLS FOR ACTION ! For if any of you had any REAL BALLS you would be at this moment organizing VERY LARGE GROUPS of PATRIOTS and you would be out in the streets with your swords and pitch forks hanging the polititions and bankers responsible for looting this country's citizens and our nations treasurey."
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Why don't you lead by example?
I'm afraid that most ZH'ers are probably here to figure a way of "gaming the system' themselves - albeit in an opposite direction to the likes of that which Golum Squid sells its clients.
While in no way defending the blowhard pussies on ZH (aka fRight club), you, as a USA NAVY veteran acted directly as the enforcer for the system (see Smedly Butler) that you now decry - a system which you now have the temerity to urge others to undo, while you spent a career doing its bidding directly (apparently quite proud of the fact) in its Armed F-O-R-C-Es
You might well be right in your current exhortations to all he ZH lard-asses out there, but with the double standard plain to see - methinks thou doth protest too much.
Couple of points, I’m much more inclined to bash the politicians, Wall Street execs and military brass that knowingly use our youth as mercenaries than those that actually put themselves on the front lines.
Second, I know there’s some hypocrisy here, (best of luck finding a place where there isn’t any) but I see more talk of preparedness than anything else on this site.
lol, Frankie speaks frankly in spanking ZH fright club's lard-asses when they jabber "holier than thou!" lyricism.
Communists, Fascists, progressives, born again Christians etc... All the same thing. Self appointed, self righteous guardians of what's best for everyone.
You forget the most important, the real initiator of the trend:
US citizens and their US citizenism, speaking on the behalf of humanity.
200+ years of US citizenism and see the result.
You forgot right wing neocon republican tea party butt holes... oh I see you covered that with FASCISTS. Never mind.
you forgot the democrat party who is the reason for corruption and fascism. hell without the regular joe ready to knife you for a nickel or a tv off a stolen exdtortion, i mean , union goon truck there would not be our AMERICAN NATIONAL SOCIALIST PARTY. the top does what it can do because the bottom who VOTE FOR THESE CHICAGO CRIMINALS want exactly what the top is...
so boil ,lets start with you and work our way down, eh.
Wonderatitall... You must have been in the asshole line when the director said line up here for brains.
Go eat some cornpone, cracker.
anyone panicing at the thought of rising real wages is an evil asshole and god damned fucking moron...unless it happens in the topp 1%....
AS I posted on another thread, a BI article shows that SAL/GDP in USA has been on backwardation decline since 1968-69, apart for small hiatus in Clinton years; down ten points historically from 54% to 44% of GDP; all the while that CP (corp profit) ratio to GDP has gone from 3.5-5 to 10% in RN/RR to GBW years!
Can't be more vivid than that!
WHAT GOES UP MUST COME DOWN: Today's Profit Margins Should Eventually Collapse... Henry Blodget | 2 hours agoRead more: http://www.businessinsider.com/corporate-profit-margins-2012-1#ixzz1l2jTYx6z
You are 100% correct.
These guys need to get their story straight. Bullshit comments like this just serve to accelerate what's coming
Everyone thinks the Fed is doing the wrong thing - except for the Fed, the big banks, billionaires, and supreme central power seekers. It's no more complicated than that.
Watching this economy is like watching an old barn collapse. It is leaning, twisted, and obviously on its last legs. We just wait on that freak breeze for the final push.
"Plenty of inflation to bring down real wages and demolish entire categories of investors, but not so much as to cause a revolt"
Fail.
Revolt in progress.
We are not backing down or compromising.
"Revolt in progress.
We are not backing down or compromising."
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So, if you are not 'backing down or compromising', what are you doing about the Unpatriot act and the NDAA?
You have already stood by while the SINGLE THING THAT MADE AMERICA GREAT, the US Constitution and the Bill of Rights, were gutted.
If you are taking action to restore the Constitution then I apoligize in advance. If you are not taking action to restore the Constitution then you are just full of hot air and bravado.
The Fed is not increasing rates anytime in the next 10 years.
The Fed can't raise rates: When the central banks decided backstop the OTC market they effectively outsourced the printing of money to their affiliates, the banks.
Works like this: The bank issues an OTC-derivative, perhaps 60 pages of dense legalese, printed right off the third floor printer. This new pile of bumf is valued at - whatever the level 3 asset model sez we need - lets say a trillion. The bank then repos this new security at the central bank in return for treasuries. The bank then leverage the treasuries at the pefectly legal and conservative industry average of 50:1. The proceeds is used to buy "real" a.k.a. paper with collateral behind it in, partly in the regulated market but mostly from the central bank itself due to the volume.
The effects ripple through the system pushing mortgage rates and government bond rates ever lower. Of course none of this Free Money goes into the real economy because "it is all invested": Somebody sells, prices are discovered, and the whole thing blows up.
The banks don't really give a shit about that they are loosing 75% of some money that never really existed in the first place - as long as they can get it laundered via the central banks they can always make more to replace it.
The FED can *try* to raise rates but then the FED will effectively have to buy the entire 1100 Trillion OTC-derivatives market AND at the same time block the banks from printing more derivatives. The OTC markets printing capacity is far bigger than that of the FED!
.... Unless legislation is made and enforced!
10 years? never again ever lol
Actually I'm a big fan of the Fed saying "we're not gonna raise rates until 3012."'and I'm being serious when I say this. In other words "of course they reserve the right to change their mind should conditions warrant."
The market will eventually (no more than 2 years...and could be 6 mths) raise interest rates for them....THEN perhaps Helicopter Ben and his band of academic savages will comprehend compound interest on US debt....
Then....we will see the results of the puerile left wing mind come to fruition.
Clowns on Acid... "The market will eventually (no more than 2 years...and could be 6 mths) raise interest rates for them...."
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What is it you don't understand about continual monetization? The treasury is selling almost every bond it prints to the Fed via the primary dealer network... The treasury bonds end up on the Fed balance sheet, which has ballooned to 3 times it's size of a couple of years ago. Some of the treasury bonds reach the Fed balance sheet through circuitous routes, for instance, Great Britian, but they never the less end up on the Fed balance sheet a few weeks or months after issuance.
As long as the Fed and treasury can keep this monetization going and the Fed balance sheet can continue to expand, the 'bond vigilanties' will be missing in action.
In effect, all US Treasury Debt will eventually be on the Fed balance sheet if the current policy continues.
Your time would be better spent contemplating what might happen to break up this game between the Fed and treasury... and less time obsessing about pols that are almost all bought and paid for by the bankers. No pol, regardless of party, is going to have a say in what happens in the issuance of US Treasuries... To do so would bring down the entire house of cards immediately and send the US Economy into depression. Pols get free tv time by making noise about raising the debt ceiling but that's all bs. Remember that at one time the US CONgress was in charge of US debt/money but they relinquished that responsibility to the Fed in 1913... so, all they can do now is STFU and hang on to the ride. Sure, they blow hard during campaign blabs but they have no substance and definitely don't care about J6P.
I believe that the game can go on as long as the paper commodities mkts can continue to keep the price of 'real commodities' in the range that they currently trade. If the paper commodities mkts fail and oil, for instance, spiked to $200 or more per bbl, then the fireworks really begin.
A few more screw ups like MF Global could be the eventual trigger, as traders, hedgers, speculators, move to, perhaps, more trustworthy foreign commodities exchanges. This 'wait and see' mode can last for a long time or it could come down suddenly. Prepare accordingly.
Snidley - open the good eye you stuttering moron.
There is this thing called the Int'l markets that will refuse to accept (indeed sell) all of Helicopter Ben's recycled paper. Understand you feckin light weight pos?
You have the socio -economic insight of a sparrow.
Now STFU and bang your head against the wall...or alternatively get an education.
Asshat clown on something... You have compiled an impressive number of NEGS... Good on you for you certainly deserve them...troll.
I did not mention international markets buying US Ts because that is not relevant now. The game now is between the Fed and Treasury and they don't give a damn if foreigners are buying their debt... In fact, if your head wasn't so far up your ass you would know that Russia, China and Japan are not adding to their pile of Ts. It's true that some Europeans are still buying Ts because they have little choice with EZ countries/ central banks insolvent... but after the default they will stop buying Ts and go back to investing in their own soverign debt.
Why don't you have another hit of blotter, or your drug of choice, and go play on Farmville? Perhaps you can manage a virtual farm? You don't belong here.
You do realize that Helicopter Ben is a left-over from W, and that the original champion of super low interest rates was Ayn Rand worshiper Alan Greenspan, right? Turn off your Rush and wake up that the left/right paradigm is there is keep puerile clowns such as yourself blaming the Blue Team (or Red Team as the case may be) when the problem is the oligarchs.
"Ayn Rand worshipper Alan Greenspan"
It's neat how you associate Alan Greenspan's anti-free market actions with his admiration for Ayn Rand, thereby fooling the uninitiated into believing it's because of his admiration for her philosophy that he trashed our currency. It's like a double-smear for the price of one and saves you and your readers the effort of clear thinking.
As I've said here before: read Alan Greenspan's writings when he actually was still her admirer, long before he went over to the dark side and took us all with him. Read his essay in Rand's Capitalism: The Unknown Ideal. It's all about sound money and the dangers of credit. I read it over a decade ago and got out of debt and started buying gold years before we began to tank.
He opted for power; she remained the best defender of the morality of Laissez-Faire Capitalism the world has known.
Back to the library hero. I'm no worshiper of Ayn Rand, but you got your facts out of adjustment slightly. I find her flavor of individualism to be overly selfish and distasteful, but her criticism of follys of state are perfectly correct and make her books worth reading. Alan Greenspan however, was anything but a free market economist as many claim. He pretended to be when it suited him, but when it came time to allow anyone to fail he became the worst kind of crony capitalism interventionist. Capitalism and lassie faire is more about dis-incentives than incentives as Taleb has discussed repeatedly; Hamurabi code and all that. You are correct that both parties are the same team. They are just slightly different variations of fascism. Bernanke is a hubristic fool that is likely to get alot of people killed.
The Austrians arrived at free markets as the best system because it is empirically the most humane system for humanity. All other roads lead to fascism communism, and eventually mass murder. Read some more Hayek, you'll find it refreshing.
What a piece, what a piece.
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Capitalism and lassie faire is more about dis-incentives than incentives as Taleb has discussed repeatedly; Hamurabi code and all that.
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Has this guy linked Hamurabi code to capitalism? Wooo... Excellent.
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The Austrians arrived at free markets as the best system because it is empirically the most humane system for humanity.
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Empirically? How? Where have those free markets express themselves in a way one could gain empirical knowledge on them and draw that kind of conclusions?
Free markets are the new US citizen fetish, their new fantaisical tale to sell to humanity in order to kick the can on what is US citizenism.
Besides, historically, the current flavour of markets are free market. But hey, this admission would dispell the fairy tale.
The "Free Market" is like the "No true Scotsman" fallacy....
Any criticism of same is met with: "Yes, but in a REAL Free Market..."
Just as any criticism of Christianity, Socialism, you name it, is discounted by the True Believers.
Drop your isms and just see what is.
Up for you. The Austrian System has never been implemented in recorded history, so anyone who claims it is best has no living example of it actually working. The only system that has worked is the American System of political economy that took us from a backwater system of colonies to defeating the British Empire in about 30 years (1789 to 1814). This is the only system that works. We switch to it whenever we face an existential crisis, and when that is over, we switch right back to British imperial monetarism. Lather, rinse, and repeat.
The founders designed a system that is supposed to destroy imperial monetarism, but the oligarchy finds a way to keep that going. One of the most popular and effective ways is to assassinate American System presidents. In fact, the Austrian System was invented by the Hapsburgs to destroy the constitutional republic of the United States. If we ever adopt it, we will be finished for good. Friedrich List is the father of our political system, not Adam Smith. The Austrian System got its name as a term of derision used by German economists. They would point out its absurdities and use air quotes around the words Austrian System.
Having most of a continent's resources so we could have a rapidly growing population helped more than the system. Germany did a lot better considering the resources available - with dictatorships - socialist dictatorships.
It was a little more than that. Otherwise, the Indians would have been a superpower when we got here.