This page has been archived and commenting is disabled.
Rick Santelli Asks The $14 Trillion Dollar Question
Two minutes into a somewhat boring pre-close wrap-up, the CNBC guests bring up the glaring revelation that perhaps, just perhaps, the Fed's $85 billion per month (plus the BoJ's exuberance) is not enough. But at three minutes, Rick Santelli dares to ask the question that no one wants to hear the answer to. Addressing questions over what bonds and commodities are telling us, Santelli notes the bubble-blowing tendencies of "re-applying [economic] medicines that don't work and don't take hold," and that the current weakness is deflationary. "Just look at 20-year lows in European car sales... or 13-year lows in China GDP growth," he explains, "you have to delever down to some sort of reality - that's the healing process;" but instead, due to "economic semantics," we "keep doing [building bigger bubbles]." With $14 trillion of central bank balance sheet reflation in place, Rick asks, what if its the "wrong medicine?"
Forward to 3:00... and enjoy an uncomfortable truth grenade...
»
- 31592 reads
- Printer-friendly version
- Send to friend
- advertisements -
http://www.guardian.co.uk/business/2013/feb/24/markets-struggling-serious-drug-habit
The prospect of US policymakers taking the opposite view, and raising interest rates, prompted a bit of soul-searching. The markets have rallied strongly since the middle of 2012, but appeared acutely vulnerable to the suggestion that monetary conditions might at some point return to something like normal. For those who don't have long enough memories to remember what normal is, that would be a world with official interest rates between 3% and 5% and where the electronic printing presses are mothballed.
The situation today is the closest the world has been to a depression since the 1930s. Then, Keynes said a depression was a "chronic condition of subnormal activity for a considerable period without any marked tendency towards recovery or towards complete collapse". The global economy has exhibited all these traits since the deep slump of 2008-09. Growth has been sub-par for a long period. There is no real sign that output is about to slump as it did four years ago, but the sort of strong recovery expected after previous post-war recessions has proved elusive. It's a depression all right.
Analysts at Morgan Stanley say we are on the brink of the third wave of global monetary easing. Phase one came in the winter of 2008-09 when interest rates were slashed virtually to zero and quantitative easing was introduced as a "temporary" measure. The drying up of credit meant the money supply was contracting and there was a fear of being sucked back to the 1930s. The hard economic data at the time suggested this was a genuine prospect. So money was made cheap and plentiful, just as Keynes would have suggested.
But by late 2011, the global economy needed another fix of the monetary stimulus drug. In part, this was because the drugs had side-effects – QE led to asset-price speculation which pushed up commodity prices, which in turn raised business costs and cut the real incomes of consumers. In part, it was because certain finance ministers – no names, no pack drill – tried a course of cold turkey too soon. In part, it was because the eurozone crises hit the rest of the world.
Now we are entering the third phase of monetary easing. The Bank of Japan will push inflation up to 2%, using a combination of monetary easing and fiscal stimulus. Mario Draghi has been talking tough at the European Central Bank but is contemplating cutting borrowing costs in response to a eurozone economy that failed to grow in every quarter of 2012 and is still heading south. The Bank of England has decided to adopt a "flexible approach" to the government's 2% inflation target and looks likely to increase its QE programme to £400bn within the next couple of months. And so it goes on. With its housing bubble about to pop, the Bank of Canada has cooled off the idea of tightening policy, while the central banks in Sweden and Australia left interest rates unchanged in February but maintained their bias towards easing. As for the Fed, anybody who thinks the US central bank is about to toughen its stance hasn't been paying attention.
The US is obsessed by the Great Depression. It is the single biggest economic event of American history and is embedded in the national psyche. Ben Bernanke, the chairman of the Federal Reserve, made his mark by studying the policy errors of the 1930s and is determined not to repeat one of them: an over-tight monetary policy. America's recovery has been modest by historical standards. Unemployment has remained much higher than the Fed would like, and it wants to see the jobless rate below 6.5% before it even thinks about tightening policy. Even that might not prompt action, according to the Fed's vice-chairman Janet Yellen.
David Brown, of New View economics, says: "We are back to bubble economics and the super-accelerant added by the central banks is the propellant that will take this rally back above the upper hemisphere in the coming years."
He adds: "The Fed is going to be the last agent that will want to upset the applecart on the risk-on revival to date. It has plied the markets with more liquidity than anyone else. It wants risk-on. It wants irrational exuberance. It wants four dimensional easing – easy money, easy rates, easy currency and easy fiscal policy. It wants stronger growth and the lower cost of capital to markets is all part of that plan. Strong equity markets and stronger financial wealth perceptions are central to this. If consumers feel wealthier because their stocks go up and house prices start to stabilize, then that is part of the game-plan too."
This all may sound eerily reminiscent of the world before the meltdown. That's because it is. The repair job on the US economy is more advanced than that in Europe, and there is a real chance of an industrial renaissance in the years to come. Energy is cheap, China has lost some of its labour-cost advantage, higher oil prices are making it far less advantageous to outsource. Manufacturing jobs are coming home.
Count and counterpoint. I like this guy Santelli.
Meanwhile, now is the true time to BTFD. Don't worry about being 10% off on physical gold and silver when you are likely to lose more.
One morning, you will wake up, and the world will be a different place while you slept. Get in position.
In other news, Philadelphia is effectively bankrupt. Mayor Michael "Da Nutta" Nutter is cozying up with 100 potential bond underwriters.
http://globaleconomicanalysis.blogspot.com/2013/04/muniland-disclosure-problem.html
Effective Federal Funds Rate from 1954 to 2013:
http://www.scribd.com/doc/136581486/Effective-Federal-Funds-Rate-1954-to-2013-Federal-Reserve
Deflation will kill gold.
gold is of a different domain as or to "deflation".
you are talking about an exchange of physical ounces
of precious metals
for printed numbers on cheap fibers.
not to diminish the artistry evident in fiat design
and execution,
the problem is the delusion of the pollution
due to excessive reproduction of executive
execution function.
. what? word
... and after every bout of deflation comes... yes, inflation, and hyperinflation.
Your gold thesis doesn't hold water when compared to historical facts.
Initially probably - but deflation here = total collapse.
And that will be good for gold.
If it does come that is...
The fact that Santelli appears as an enigma is the scariest part of all.
What a strange place to be, when we latch on to truth, but collectively do not have the wherewithal to get there.
It does not speak well of the underlying issue...
An acquaintance had a bad dream. It disturbed him so much that, sadly he told me about it. I hope it's not true, but he dreamed maybe gold is trapped, that it's possible B's Fed can print as much money as it wants (electronically), have its shills short the poo out of pms, buy it when it's low, cover their shorts, repeat, repeat, repeat. This process is not going to last, but "they" aren't concerned about forever and will only leave the feathers of this country for the rest of us to feast on, and store their hard earned pms wherever they think is safe from us. I don't think China or Russia's buying is a limiting factor. They are part of the great pm caper. Cui Bono dudes! Sweet dreams!
BUT! No matter what they do they cannot print jobs. Nor can they print natural resources. I think that they'll absorb all the assets and then hand them over to the govt (be too hot for them to handle, and it'll map to the meme of "kill the bankers"- big celebration that we get to force everything from the hands of the bankers). Then it'll all be sold off, to the mob (or whatever), just like it's always done (they'll place themselves in position to control the govt levers that aim the shoots at their direction). Same as it ever was...
The Fed will continue to hand trillions to the bankers until the 99% are absolutely impoverished.
WHO is that haggard bitch on the bottom left?
Is it me or is Michelle looking less Morticia like lately?
"Economic semantics causes wrong medicine."
Love it.
Rick probably really wanted to say:
"Economic vodoo from the Witch Doctor Bernanke is fucking over the economy and that man should be tarred, feathered, chased out of town on a rail, and the FED ended for all eternity.
Unless the People abolish the Federal Reserve nothing will change, it will only get worse. This is the only issue that matters right now.