This page has been archived and commenting is disabled.
The Fed COMPLETELY Missed the Boat on Deflation/Inflation
The great liquidity tsunami of the post Crash era is coming to an end. But the inflationary aftereffects are only just beginning.
The Fed is now actively tapering its QE programs. The $85 billion per month QE 3 and QE 4 programs have been reduced to $45 in asset purchases billion per month.
While this still comes to an annualized rate of $540 billion in purchases per year, it marks a significant shift in Fed policy.
Let’s be blunt here. The Fed has engaged in the single largest monetary experiment in history, betting the US economy and banking system on misguided theories that have little to no evidence of success.
The 1970s proved that the Phillips curve (the idea that high inflation cannot coincide with high unemployment) was a bogus idea. And both Japan and the UK have proven that QE does not generate sustainable growth: both countries have engaged in QE efforts equal to over 25% of their GDPs… neither have seen sustained economic growth.
Finally, and this is the single most important item to note… the Fed is fighting the wrong fight. And it has been for well over a decade.
In the early 2000s, Alan Greenspan was worried about deflation. So he hired Ben Bernanke, the self-proclaimed expert on the Great Depression from Princeton. The idea was that with Bernanke as his right hand man, Greenspan could put off deflation from hitting the US. Indeed, one of Bernanke’s first speeches as a Fed President was titled “Deflation: Making Sure It Doesn't Happen Here"
The entire reason Bernanke was hired was to ward off deflation. Now take a look at the following charts.
Here’s what happened to home prices during the Greenspan/Bernanke tenure.
This looks an awful like inflation, not deflation.
Here’s what happened to food prices.
Here’s what happened to oil prices.
And here’s what happened to stocks.
All of the above items indicate intense IN-flation, not DE-flation. The Fed literally hired a deflation expert who helped manufacture one of the greatest periods of inflation in history!
My point with this is that the Fed is typically way behind the curve when it comes to economic forecasts and subsequent monetary policy. By worrying about deflation, the Fed blew bubbles in most asset classes resulting in the 2008 Crisis.
This concludes this article. If you’re looking for the means of protecting your portfolio from the coming collapse, you can pick up a FREE investment report titled Protect Your Portfolio at http://phoenixcapitalmarketing.com/special-reports.html.
This report outlines a number of strategies you can implement to prepare yourself and your loved ones from the coming market carnage.
Best Regards
Phoenix Capital Research
- advertisements -
Frilton Miedman;
I had this question come up over a month ago trying to diagram the activities that the Fed or the Treasury or even US Congress would have to look at to Protect the US Currency (I set aside the idea of a Petro Dollar for this Exercise).
We are led down the Primrose Path each time a politician speaks on the Economy, Bailout, ZIRP, QE, Inflation (think Fed Speaker or Treasury Speakers here).
I just want to know.
Who is protecting the Currency. Who has the Mission of protecting the Currency itself aside from counterfeiting (Secret Service).
I doesn't jump out at you on Fed or Treasury Webpages.
And Comptroller of the Currency doesn't seem to claim it either.
Currency minting & control, It's in the Constitution.
Again, Congress, whom has granted authority to the Fed.
Ultimately Congress gets the say over the Fed, as soon as we are conviced to waste to fretting over the Fed, we allow ourselves to forget that the Fed is empowered via Congress, and the Fed is currently reacting to decisions made (and not made) by Congress.
Even those who want to completely fault the Fed, call your rep, because only Congress has the Constitutional authority to effect any change over the Fed.
Personally, I'd like to see changes in conflicts of interest with board members, perhaps allowing equal weighted representation of non-banking, small business & consumer groups, but calling the Fed would yield me nothing.
A decision to alter the Fed's board falls on Congress, I find it odd that so much compaining goes on here about the Fed, but no one seems to focus on it's authority, and arguably, the cause of Fed's policy in the first place.
However, Fed policy has dramatically reduced mortgage rates and household debt service costs, which, in spite of diminishing median wages, has kept the economy from falling off a cliff.
Which is the problem with an overactive Fed. the economy is so complex and interconnected that you can't conduct a policy aimed to fix on single problme...without creating many more. unfortunately, i don't have time to post of the horrible outcomes of ZIRP. This is why i believe it only ends in a complete and total dictatorship. The more you impose your will on free markets or men, the more unintended problems arise and the more you must control.
I do agree with your Bandaid...although maybe more like life support. we died in 2008, the fed is only stealing the economic production of the next few generation to resuscitate this 95 year old patient with terminal cancer.
Like I said, no debate on the potential negatives.
Neither you nor I can really state what will happen, but we can both agree it's unnerving with excess reserves at these levels.
While the 2008 Fed rule change on excess reserves might be why we haven't experienced serious inflation as yet, I'm not going to pretend I'm psychic.
I only wanted to paint a broader picture, not an endorsement of monetary policy, just a broader picture of the real dilemma of dismal wage growth.
On the plus side, there's no denying household deleveraging instead of debt fueling conspicuous consumption is a postiive.
That's where the magic of reserve currency status comes in, your inflation is exported to the rest of the world.
China's inflation would not have been as high had they not bought massive amounts of USD.
Europe may have had a bit more green shoot economic recovery had the Euro not remained such an expensive currency against the USD.
Japan, ok, Japan probably still would have went on to their own QE, but maybe they wouldn't have to print as much.
That's why the rest of the world is so fed up and eager to skip the USD, because the US is simply exporting its problems to the rest of globe.
But of course, inflation was always going to come back to US once the rest of the world is either saturated or fed up with the US exporting its problems.
China is doing its best to burn all carry trades and send foreign credit(much of it fueling bubbles in China) back out of the country.
Japan is in competitive printing mode.
NIRP in the EU isn't QE but it's still a currency devaluation exercise, without legally coming across as currency manipulation - by forcing everyone in Europe to park their funds outside Europe, which is technically buying other currencies.
Now that most of the major world economies have taken similar or competitive steps against the pump flowing from the US, inflation will have to come home to the US. Where else was it going to go? we do live on a finite planet after all.
Technically, this is where the FED should taper or risk soaring inflation since their export gimmick has been overturned. But who knows, given the current fragile geopolitical balance around the globe and the losing popularity of a president looking for economic lift-off, maybe they are just as likely to push the 'print moar' button and race everyone to the bottom, and then turn it into geopolitics and blame it on hostile nations, that's usually way easier... but hey, that's just a wild theory.
"...the fed is only stealing the economic production of the next few generation to resuscitate this 95 year old patient with terminal cancer."
No, let's have clarity... saving the asses of TPTB at the Fed and other cartel banks. They hope to survive, they hope we won't. http://www.thecommonsenseshow.com/2013/02/20/2492/
For someone to win with "dramatically reduced mortgage rates..." someone must lose with lower income from the interest payment. My reduced mortgage payment = I buy more stuff. My reduced intrest payment = I buy less stuff. It's a wash except for all of the malinvestment in overpriced housing.
As I mentioned, deleveraging has brought household debt to income ratio down 20%.
This means households have caught on (we hope), buying less bling and paying down debt instead.
As far as who wins & who loses, with MBA mortgage applications dropping off a cliff due to refi's saturating almost the entire market, and the bulk of refi's being fixed rate, banks would be the losers.
I won't argue against the notion that banks are winning elsewhere, but on mortgages the "win" goes to households, for now.
Debt to income is down ... ? Are you a fool Frilton? The debt came down because of bankruptcies and it was then taken on by the government. That's our debt. meanwhile, only the top 0.1% have higher incomes. Go back to reading Krugman in the NYT.
Einstein, yes, per FRED (you can look yourself) household debt to income is down 20%, atop that, the actual cost to service that debt as a % of income is down below the 1980 level, DESPITE lack of wage growth.
Here, have a look (service payments as a %) - http://research.stlouisfed.org/fred2/series/TDSP
While I agree about the 1% who's incomes are up very well, and the rest is down since 2007, the debt statement I made is true, households have deleveraged.
I have repeatedly and constantly stated that everything now hinges on median wage growth, but lowered costs to service debt have gone a long way in helping households recover since the '08 crisis.
However, if that doesn't suit your "thesis", fine -
Just pretend I'm lying and stay 100% short using the most leveraged instruments you can find, max out your margin too, 'cause anyone who says otherwise is readin' too much Krugman, or, something.
Personally, I like to incorporate real data into my trades and keep my melodrama on the side, but I'm sure you're doing just swell with your own portfolio.
House sales in SoCal are slowing dramatically despite this being the usual 'high season.' As QE ends, house prices will correct downward reverting to the norm as will house sales. Realtors are already getting depressed:
Industry with highest level of depression treatment? Real estate and intercity passenger transit. SoCal home sales continue to lag as spring and summer season fail to take off.http://www.doctorhousingbubble.com/
This I agree with, home prices are still bloated relative to the mean price/wage average.
Ben Bernanke said he saw NO problem with the housing market...but that was him being the mouthpiece for Greenspan's "gigundo bubble."
That's the biggest deflation in world history...and trying to argue against being right on the money just makes all of us look like dipshits here.
The problem is that Benrnake having been put in that position for a specific reason...having that specific reason realized...then tried to do something..."theoretical." A "financial Von Monstein" as it were.
The political class...in particular the left...latched on to QE as if it was "the man for all seasons."
But Bernanke and the rest saw the massive shot if inflation coming and tried to pre-empt it last summer.
Clearly these guys knew their shit because that inflation shot last winter was epic. So then what? Bernanke was fired...the theory of "MOAR" was still disbanded...and just like that "War in the East."
Currently this "next war" is to be fought by 500 marines.
The "enemy" numbers about a billion plus and the front is about 7000 miles.
You might need more than one ship to hold that line.
To that, I would add, the rise and fall of the Roman Empire, Youtube cat video's and one baby's arm holding an apple.