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The Fed Cannot Wait For Wage Inflation to Raise Rates
By EconMatters
5.9% Unemployment Rate
On Friday the Employment Report came out reaffirming the stellar 2014 employment story, in fact the United States has created an amazing amount of jobs this year, well ahead of both the Fed`s own forecast for job creation and the most optimistic economist outlook for 2014 bringing the unemployment rate down to 5.9% with three months still left in the year.
To say that the Federal Reserve is behind the curve is an understatement now that we have broken the 6% barrier, of course all the participants who want continued free money will point to all kinds of excuses for maintaining recession era rates to juice everything from stock buybacks to yield carry trades.
Spoiled Little Brats
Financial markets are like a bunch of spoiled sweet sixteen little girls who have daddy wrapped around their finger, and when they don`t get what they want, they throw a temper tantrum, i.e., European banks who bought all those bonds expecting the ECB to take these largely terrible investments off their books.
Here is a newsflash the ECB isn`t going to save Europe, Europe needs to start making themselves competitive on a world stage, or be left by the wayside as strictly a tourist destination, they just aren`t very innovative, how`s the high tech startup scene in Paris? They will be forever economic dinosaurs symbolic of those rotting locks on a bridge without some major cultural rejuvenation, tourism and property money laundering businesses can only go so far up against China, South Korea and the United States as Global Business Competitors.
Federal Reserve Doesn`t Dictate Wage Rates versus Market Forces
Similarly, in the US if the Fed waits for wages to jump before raising rates it is way too late, and the risk will be that they will have to raise rates by a lot more in a shorter duration of time, and this will cause major market tumult. Those of you who thought volatility was high this past week just wait until the Fed waits to as I have heard it described by some naive commentators as the “Whites of the eyes of inflation” before raising rates; and they have to deal with 100 basis point rate rises in two months’ time because inflation did really show the economy its wicked whites!
Sooner and Slower versus Later and Faster
The responsible choice is always to raise rates sooner but at a slower pace versus to wait and have to raise rates a lot more to play catch up from a market and economic perspective, and overall risk to financial stability of the financial system, i.e., have you seen the repo market at quarter end in a relatively low volatility environment.
Market behind the Fed who is Behind the Curve!
Everybody wants the party to continue for the last possible second, and we are in October with a 5.9% unemployment rate, and everybody thinks they are going to be the first to get out when they get the signal from the Fed. But the financial market is so complacent, that half the market doesn`t believe the Federal Reserve will raise rates in 2015.
The financial market is so behind the dot curve for rate rises that James Bullard keeps feeling the need to chide the market on this matter, he can save his breath as they are like the proverbial college student doing the 15 page term paper the night before it is due, they will literally wait to unwind these leveraged yield chasing trades until there is absolutely no liquidity in the market for getting out of these trades.
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Market Participants Don`t Have a Good Track Record of Profiling Risk Positioning
The Fed needs to understand the risk taking maturity of these players in developing their exit strategy, and the last thing they want to do is wait for wage inflation to raise rates. This will result in 50 basis points rate raises of the Fed Funds and more market volatility that frankly the financial system just cannot handle.
I am talking about a VIX at 40 and above, and 500 point down days in the Dow on a regular basis if the Fed makes the irresponsible choice to wait but have to raise rates by a bunch in ‘catchup mode’ versus responsibility signaling small 25 basis point rate rises starting in March of 2015.
And if the Fed chooses the responsible strategy they need to signal to market players this month in the October Statement now that QE has come to an end what their rate timetable is in concrete fashion and not a bunch of dots on an econ graph for 2015.
F
orget the Nuance – Spell it out Clearly
These people in financial markets need everything spelled out for them in easy to understand metrics, spare the nuance, it is way over these guy`s heads, most of these people can barely fog up a mirror on a good day, simply state we intend to raise rates by 25 basis points at the March QTRLY Meeting all things being equal, i.e., the economy continues growing at a modest pace of above 2% GDP Growth.
Current Fed Mumble Jumble Irresponsible & Confusing
But this current data dependent, dot plots on a graph, fed mumble jumble is only going to make any change more dramatic for financial markets; they need a formalized, concrete plan for rate rises in 2015 in the next Fed Statement this month. Shoot if Janet Yellen told financial markets that she intended to raise rates by such an such date, at this level of market complacency, it would take at least 6 months just to get positioned for such a change in Rate Policy given 7 years of positioning in the other direction, and I don`t think she or any of those commentators who advocate wanting to see the whites of the eyes of inflation before changing monetary policy have any real experience of needing to exit large positions in an illiquid market where there are no buyers for the other side of the trade!
October Fed Statement Needs Clearly Defined Rate Hike Schedule for 2015!
If Janet Yellen doesn’t spell out a clearly defined rate rise schedule for 2015 in this October statement, she is conducting Fed Policy in such an irresponsible manner, and will be directly responsible for the disastrous results that will follow in 2015 for financial markets as market dislocation reaches epic proportions with a VIX at 40 and market curbs and CNBC Nightly Specials a common occurrence.
This past week gives her and investors a slight glimpse of this horror show, and that is with 15 Billion of Fed stimulus still backstopping asset prices, and a ZIRP environment – and we still had almost 300 point down days in the Dow. What does she think will happen if she waits until March to inform investors that the Fed will be raising rates in June of 2015 – seems like the recipe for a Market Crash Scenario if you ask me?
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...the FED and all of it's constituents as it were should be hacked up into little pieces and incenerated
...we the people shall no longer tolerate the actions of this group or the elitist cabal.
-the author of this article is a clueless fucking idiot.
...the FED and all of it's constituents as it were should be hacked up into little pieces and incenerated
...we the people shall no longer tolerate the actions of this group or the elitist cabal.
-the author of this article is a clueless fucking idiot.
"On Friday the Employment Report came out reaffirming the stellar 2014 employment story"
'Econ Matters' is either woefully ignorant, or purposely misleading in this article with their gushing praise for all this 'job creation'. It was Right Here, not (2) days ago, that the REAL 'employment' situation was graphed out, inarguably, in all its acrid glory. 4 out of 5 jobs were Retail/service oriented. How in the bloody Hell does one conflate that series with 'stellar employment story'...?
As stated, either woefully Ignorant, or Purposely Misleading, 'Econ Matters'...
The Fed as well as the ECB absolutely need and want inflation. Period. They know that there are only two avenues to get out of this mess (i.e., excessive debt against GDP and earnings/income). Inflation and deflation. They can either attempt to inflate their way out of the debt to GDP ratios to return to more managable norms or experience full scale deflation which will appropriately reset debt levels to much more managable and much lower levels (but at a huge cost). The use of QE and ZIRP/NIRP is only buying time until one of these two final outcomes is realized.
A couple of years ago, I thought inflation was going to win the battle but today, I have swung to the deflation outcome. The reasons are simple and based in two key facts. Debt as in there is simply too much public, private, and personal debt to be repaid against available income which is simply too low to service the debt (think personal earnings levels, governments that constantly run deficits, etc.). The only way the debt is currently being serviced is by secondary repayment sources stepping in to cover defacto defaults (e.g., CBs buying soverign debt) and through the use of zero real interest rates.
My three keys to watching this mess unfold are simple. First is the Yen/Japan which may finally be realizing it's "Come to Jesus Moment". On top of a currency which is losing value quickly, the Japan economy is really in terrible shape from a demographic and competitive standpoint. The fact that Sony, one of Japan's best/biggest brands, can't compete on a global scale anymore and is getting smoked by Apple and Samsung should be a red flag. Second is CAT/COM as in Caterpillar and commodities. Both are under pressure as CAT is invested heavily in the hard commodities industry and commodities in general are deflating (base metals, grains, PMs, oil/energy, etc.). Third is the VIX and other volitity measures. As the Fed finalizes its QE exit, the markets will most likely experience some real heartburn/gas pains.
My guess is the current rise in the USD is causing the Fed some real concern as not only will US products be more expensive on a global basis (thus impacting demand) but in addition, US earnings from large mult-nationals will be negatively impacted and most importantly, the strenghtening USD will result in "deflationary" pressures to take hold (and not inflation). Absolutely not what the Fed wants.
In the short run, I see a continued trend in the increase of the value of the USD, not as a result of fundamentals but rather as a result of being the only drunken sailor that hasn't passed out yet. Needless to say, this will be painful for PM investors in the near future so it is going to be very important to show a good deal of patience and dicipline when purchasing Gold and Silver over the coming months, acquirer on the major dips and deal with continued pressure as everyone ends up on the same side of the trade (i.e., in the USD). However, trading PMs in dying currencies may offer opportunities.
But remember in the end one key thought. Excessive inflation will simply cost the CBs their jobs. Deflation will cost them their jobs and lives (as social unrest explodes with the great debt reset). The CBs are not going to go down without one hell of a fight.
So we either inflate our way out of debt, or default on our debt ?
Oct 2013 our national debt was $16.7 TRILLION
Right now its at $17.7 TRILLION
Obama lied. We didnt have a $500 billion budget defecit for the past fiscal year, it was $1 TRILLION !!
The system will crack up if rates go up.
The Fed doesn't raise rates. The Fed doesn't control rates. This is just MSM bullshit.
The Fed can influence rates when they have their fiat printers running full tilt, but that lasts only so long.
The Fed follows the 3 Mnth T-Bill rate as shown here:
http://bullandbearmash.com/about/us-prime-rate/
With the USD acting as a flight to safety (so much for gold), rates can remain low. The masses want to purchase US debt - it's really a case of which is worse - the USD is the best of the worst at this point in time.
Poor analysis. The fed is desperately trying to get rates up, not keep them down. They do not control long term rates. The more they raise short rates, the lower go long rates. They want nothing more than higher rates. goldman and all of the other banks as well as the fed speakers continue to try and talk up rates. We are at the point that the wizard is revealed. You had better cover those short tbond bets. Those who are short commodities and tbonds will very soon be capitulating. Get out with what you can now.
If the Fed wanted higher rates it would have raised them long ago. They know that high rates like high gold prices challenge their free money machine called QE and represents the basis of their power to control the entire Western world.
They are frantically trying to buy time and keep their criminal counterfeiting enterprise going as long as possible. The fly in the ointment are the BRICS undermining the global reserve and petrodollar skimming racket,
When the corrupt, uneeded and rejected global dollars return to our shores in a tsunami shit tide, the collapse of the welfare, warfare and Big Government regulatory states that have made us uncompetitive globally, will collapse here too.
We won't even have the money to support the NATO afghan heroin trade that's funding our organized crime Jesuit, Masonic and Zionist secret rulers.
Only China really is relevant for the US ... the rest of the BRICS can play their little trade games in irrelevance. China going to trade balance with the US would hurt standards of living a little, but they only supply luxuries so it wouldn't be that bad. Together with increased employment that wouldn't be such a bad deal for the US.
Only the house of Saud can do real damage to the petrodollar. Removing trade surplusses, from Saudi Arabia and after the collapse of the dollar from South America and Europe would hurt the US far more than those from the BRICS.
Like Sam, I am praying for a tsunami to wipe out this unholy regime. Then we can fight it out, ending up with managable governing units with citizens sharing their visions of a civil society. 100m armed pissed off whites aren't going to be denied.
Revolutions take decades, generations, to foment. The one thing that will speed that up is the government collapsing under its own greedy, criminal weight. That could be brought on by anything, but certainly some candidates like the next phase of this financial crisis, another 9-11, ebola, pissing off Putin or even electing another horsefucker like Barry O could do it. I'm with you.
Official Unemployment rate is of course an invention. The changing demogrphic of new employment very troubling, the way they measure and quote unemployment so many 'invented' variables that they can goal seek anything they wish.
At the moment USD needs a bit of credibility. Look the economy is recovering, employment getting better. However if with 1978 participation rates the 5.9% is obviously a total farce.
But not only is real unemployment a whole lot higher ...... just how much has 'under employment' increased.
It is troubling that after 'printing' so much money globally the US economy has basically gone nowhere. People now have to work multiple part time jobs to make ends meet. Employment only increasiing in the cheap over 55s demographic....full time employment falling. This is disaster territory for the US.
I agree that there must come a point when TPTB decide the game is up....and well, let it all blow up in everybody elses faces...but those for whom they work will be well out of it and protected as best can be.
An indication that they would be rising rates, and actually doing it, may be a Black Swan in itself...that knocks over all those dominoes..... IF they go for an interest rate increase....well we wonder if the decision has thus been for a Reset.
And....M2....off the charts...stealth now...
http://www.acting-man.com/blog/media/2014/02/M2-and-Gold.png
http://dailyresourcehunter.com/wp-content/uploads/2013/06/DRH062813_Gold...
Trying to simplify a set of Rules called "Teeth's Laws", but that maybe a little too glorified:
- Central Bank Corruption increases at an increasing rate correlated to the size of the banks that own it
- FED Intervention is inversely related Freedom, Liberty & Equality
- National Corruption is perfectly correlated to the amount of money in politics
- Inverse relationship between amount of phony government statistics and the common peoples tolerance
- Inverse relationship between government wars & the wealth of the common people
- Direct relationship between the number of small businesses, self employment, freedom of press, free internet, number of whistle-blowers WITH Democracy, Freedom, Liberty & Equality
- Direct relationship between CEO & Banking Executives Compensation with the amount of money extracted from Government & Common People
- Direct relationship between the complexities of Laws & Financial Schemes with Corruption
- Direct relationship between the number of transactions the banking industry handles in Derivatives & the Amount of USDs created "out of thin air" with the Decline of US Wealth
- Direct relationship between the Size of the Military Industrial Complex & military actions & military Spending
- Direct relationship between the Size of the Federal Government & Lack of Transparency WITH the Size of the Coup that took it over
And on a personal level:
- Direct Relationship between Debt & Enslavement
- An athlete's quality of life and long-term outlook is directly related to the number of blows to the head
- A man's use of drugs & alcohol is strongly related to his ability to survive SHTF, Economic Collapse, quality of relationships, and the time put into taking care of housework
***This is an unfinished Product***
The Federal Reserve is not even a Bank. It's a printing company.
Weird thinking about our government being corporations, being controlled by those holding their bonds, and their bonds being exposed to A-Cementric Warfare on Wall Street.
The FED obviously has board members, stock holders, bond holders... member banks, prime dealers and was put together by European Banking Powers on Jeckle Island.
here is new video on government corporations
https://www.youtube.com/watch?v=05o4CpB9I8g&index=80&list=UUXkBbDD--DOuh...
Is this article meant to be pure comedy or is ZH a dirty pirate hooker?