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The Fed Can`t Raise Rates Because the Sky Is Blue
By EconMatters
We Cannot Raise Rates Because…
This is starting to become outright laughable if it wasn`t so incompetent and irresponsible interest rate policy, or lack of policy by the Federal Reserve. Forget unemployment, GDP, Structural Economic Issues, Wages, or Inflation now the reason the Federal Reserve cannot raise interest rates from recession era levels is because the dollar is too strong. Talk about drawing the line, moving the line back or forward; now the Federal Reserve is trying to redefine what constitutes a ‘line’ in the first place.
Fed Out of Financial Markets
We are not talking about raising the Fed Fund`s Rate to 4% we are just talking about raising rates more in line with basically a normal functioning economy growing at 2 plus percent on an annual basis with an unemployment rate in the fives. If the Federal Reserve cannot raise rates after 7 long years, this either says a lot about their lower rate and QE strategy in the first place, i.e., it hasn`t worked, or they need to quit making excuses and raise the freaking rate already. This has gone on long enough; I want the Federal Reserve out of financial market manipulation with absurdly idiotic interventionist policies. There is something seriously wrong if the Federal Reserve cannot raise the Fed Fund`s Rate a measly 100 basis points after 7 longs years of ZIRP! Seven years is an entire business and economic cycle, shoot the economy has been at ZIRP for so long it literally could cycle back to recession just because it has been so long, and business cycles have normal patterns of growth and contraction, we did study this in business school, this is economics 101!
Read More >> The Fed Can't Wait For Wage Inflation to Raise Rate
Newsflash: “Imperfect World”
If I hear another idiot dove discuss another obscure reason why they need to continue with ZIRP methodology because Apple had a bad quarter, or Spain has high unemployment, or China is trying to rebalance their economy, or Venezuela has a social system that sucks, or Germany needs to diversify from Luxury Automobiles, or 50 people in Developed Economies die from Ebola, or the Middle East is in conflict then the Federal Reserve should just come out and state that due to an ‘imperfect world’ they can never raise rates, and the Fed Fund`s Rate has now been renamed the ZIRP New Normal Rate for eternity.
Read More >>> Newsflash: Everyone Shops Online These Days!
ZIRP Will Save the Planet!
I heard some analyst come on TV and say Geo-Political turmoil is at unprecedented levels, gee how did the world ever survive two world wars, AIDS, Communism, the Iraq-Iran War, Israel fighting many wars, starvation in Africa, Presidential Assassinations, the Vietnam War, Argentina, Mexican, Russian Currency Bailouts all without a ZIRP Mandate for Lifetime Emergency Measure to save Mankind! If only we keep ZIRP around and investors are enabled to buy more stocks and bonds at any valuation and low of a yield, throwing all risk exposure scenarios out the window, because ZIRP is the Wonder Drug it solves all global problems, and any valuation and yield is justifiable when the money is free under the New World Normal Economic Models of the Federal Reserve.
Unintended Consequences & History of Fed Interventions
Everything has a cost, that is the first lesson the Fed needs to get straight right now, and absurd dovishness has consequences, as I see it there is a tradeoff, and with an economy creating 250k jobs a month, and an unemployment rate under six, it is only a matter of when and not if before wage inflation smacks the Fed where they though they actually wanted to see Wages Rising Faster than Janet Yellen can say $15 minimum Wage for flipping burgers. Gas prices may be giving consumers a break but this just means prices will be raised in retail now that consumers have a little extra cash in their pockets to spend on discretionary purchases until oil makes its next $25 dollar run in the other direction on stronger demand and the next Middle East Crisis. I agree that the Minimum Wage needs to be raised, corporations will exploit as much as you let them get away with, but why do you think the Minimum Wage is so out of whack with the Cost of Living, it is because there has been runaway inflation since the last raise in the Minimum Wage due to excessively loose monetary policies and selective measuring of overall inflation in the economy!
Read More >>> Central Banks Biggest Concern Should Be Market Stability
Ask Yourselves Why the Minimum Wage Needs to be raised So Much?
Oh poor Fed the “Official Government Tracked” measure of inflation is under 2%, this is mighty convenient for a body that benefits from lower inflation measures, so that they can continue printing money and creating more asset bubbles that amazingly enough don`t turn out right, and then the Fed needs to come to the rescue all over again with additional economic stimulus. The financial markets have become so reliant on Fed Stimulus in what are supposed to be price discovery and value setting mechanisms that they literally don`t know how to function without their monthly Crack Infusion from the Federal Reserve. Europe literally is begging for more Crack or they are going to throw a temper tantrum as if 10 basis point borrowing costs isn`t enough already. More Crack Stimulus is not the answer for economic problems at the zero bound, and failure to recognize this ‘Enabling Central Bank Role’ in setting the groundwork for future financial crises in the form of unsustainable asset prices not reflecting the underlying fundamentals of poor Debt To GDP Ratios in Europe, or US Stocks & Bonds unable to sustain themselves without ZIRP Stimulus from the Federal Reserve is the definition of insanity.
The Tradeoff: Deferred Gratification a Sign of Competence
Enough already the world is never going to be perfect, the economy is never going to be perfect but responsible Fed Policy understands this tradeoff, you can raise interest rates sooner and in a more gradual fashion, or wait to raise rates and have to raise a bunch in a short amount of time. And given where asset prices are after 7 years of stimulus which scenario do you think will cause more market instability? What I am referring to is the next financial crisis if the Fed waits to raise rates, i.e., they take the short-term benefit at the risk of the long-term ruin, then they are not only destined for sending the financial markets into a calamitous event, but given all the warnings and recent history of Fed inspired Bubbles Bursting, it seems a deliberate suicidal plan. It seems the Federal Reserve being an independent body accountable to no oversight has to stop; a strong dollar because the US Economy is outperforming its peers is a good thing, and not an excuse to continue ZIRP Madness. I swear next the Doves at the Fed will say that ‘Aging Demographics’ is a real concern for them, and therefore they might have to keep interest rates lower for a more prolonged amount of time. How did my parent`s generation ever survive with a 4% Fed Funds Rate? The Fed has become the local Crack Dealer for Financial Markets!
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Just raise minimum wage to $1000.00 an hour then everyone will be rich. While they are at it force all employers to give Cadillac health care plans and cut the work week to an hour for everyone. Then we can bask in the luxury that is Venezuela.
Once you start ZIRP, you can never stop it without causing a crash. Ask Japan about it.
bye the fcking dip, dip, daa dipp dipp dipp, Oh baby, you know what I like
"When you dip I dip we dip"
Zimbabwe in econ, Zimbabwe in disease, perhaps we should merge.
the fed can raise rates, with the caveat that it will always be something less than the CPI. if money can be borrowed and lent at less than the rate of inflation, everything is fine. with the white noise in the data, Yellen isnt sure what the inflation rate is. then the market would interpret even 100 basis point raise as a change in policy, better to hold back then jump the rate suddenly, after preparing the ground along the way. the fed is known for incremental policy shifts and that allows them to leverage markets higher, but it also handcuffs them when its time to take the punchbowl away. in terms of real policy i think the fed has achieved its goal, of a zero rate environment, and the economy is not going to adjust any time soon to a system where value is built through monetary inflation. that said the fed can't raise rates, they've created this monster now they have to live it. the only alternative is to leave rates at zero and restrict lending, reduce supply. that might be perceived as a victory by the markets, but of course those who see the fed as a politburo would just have more ammunition, but if they already hate you, that's us, and we don't matter, then by all means put controls on credit. i think thats what they will do
What is this sick obsession with inflation? They are so determined to inflate enough to enrich those big portfolios, aren't they?
Well, you can't have declining wages and rising asset prices. The two are incompatible. If one goes up, the other must follow, or the whole things tanks.
And, in a time of increasing worker productivity, prices MUST decline, they will do so naturally. Eventually as productivity increases, prices should decline so as to become nearly irrelevant for all but the most expensive assets. At that point, you should have segued into a different type of system.
Gold would lead us there gently, as money would become finite again. The combination of more goods chasing the same amount of physical money would naturally mean declining prices over time, which would allow us the time to adjust to a new paradigm in how we run our economy.
Believe it or not, the current system of currencies is NOT the only, or even the best way of exchanging goods and services. And it has had the unfortunate result of monetizing things that should NEVER have been monetized. Because in our current system, everything must be assigned a value in dollars, and there are many things that simply cannot be valued in that way.
inflation is important, because unless bond yields remain lower than CPI investors will hoard cash, this is the feds policy of mandating risk on. this is why TIP bonds are the secret solution to all this. if CPI runs 4% and the short term yields 2% thats 100% spread. mostly we never notice this because we're locked into nominal rates, its the spread that will get you. with TIPs you get the yield and the spread, so you are at least holding your own, but you will never outperform, but thats not the goal here, the goal is to avoid their policy of stealth deflation, the trickling away of your personal assets through a trickle down bail in policy. they might as well tax savings accounts. they have the power to manage CPI anyway they see fit, but they need CPI as well, and when Yellen can't read the data she can't figure out where to pin rates, and thats a problem. 100 basis points means she sees inflation (her CPI and the one we see are completely different) if she sees inflation the market will go nuts.
I've always read that interest rates cannot be increased because it would implode $600 trillion in derivative positions.
reportedly a .25% rise in short term rates would bankrupt the fed fragile balance sheet and all those deferred assets
" I see it there is a tradeoff, and with an economy creating 250k jobs a month, and an unemployment rate under six, it is only a matter of when and not if before wage inflation smacks the Fed where they though they actually wanted to see Wages Rising Faster than Janet Yellen can say $15 minimum Wage for flipping burgers."
That's if the unemployment rate really was under 6%.
paying a few burger flippers $15 isn't going to change anything, it will create a situation where some fast food workers make as much as some teachers, but in the final outcome the average burger flipper will have a college education. when mcdonalds realizes they are getting twice the employee for something less than twice the wages, a whole new attitude will come about in business. business will realize raising wages slightly improves the quality of their workforce two or three times the cost to them. corporate america will suddenly discover the employee (next years top magazine cover) you see that 50000 college education finally pays off. lets see 50000 divided by 15 is??
The most employable spokesman at the FED is Baghdad Bob
This was written by a moron.
How about real statistics for a real economy where it really trades freely. Fuck the Fed, Fuck the phony BLS statistics, Fuck minimum wage and Fuck you Econ matters. I want my two minutes back!
Second paragraph made me laugh ... "economy growing at 2 plus percent on an annual basis with an unemployment rate in the fives". Those are numbers that only the Koolaid drinkers would believe. BLS numbers like 5.9 per cent are ridiculous; I think John Williams of Shadow Stats fame is much closer with 22 percent number. Shadow Stats also very convincingly shows that our economy is in decline, not growing.
The federal Reserve Bank is a creation of the Congress. It's what allows the government to spend well beyond its tax resources. It allows the United States to be a welfare state to keep the majority of the voters happily on the dole and allows the military industrial complex to continue to deliver weapons to the congressional war mongers. So, if you think that Congress would ever abolish the federal reserve bank, then you're sadly mistaken. We are on a steady course to collapse that even a blind man can now see.
Dear 'EconMatters':
It has been You with your posts, telling all just how the markets can 'handle it' - a 'normalization' of interest rates, that is. It has been You, touting the government's own numbers of an 'improving' employment picture, 'GDP', etc. Perhaps now, it should be YOU who sees what the Fed CLEARLY sees. And it ain't good... Of Course! We should have rising rates. We should have a Minimum of 8% Right Now... Of course, that would literally implode this economy - but that's coming anyway, and YOU know it, despite your outlook that the economy can 'handle' it. Now it is time for YOU to come to that understanding. (2 - 3) years of likely brutal economic hardship, and then...? With a dash of honest money and a few crony-capitalists out of office - the sky's the limit for the U.S. economy. But can You/we take the medicine...?
Volcker could raise rates in 1980 to save the shitty system but now with the gutting of manufacturing and debts piled to pluto, it is not going to happen till the debt ponzi is vaporized. Stack and plan accordingly. The USA used to have an economy "made of steel", now its just a bunch electrons in a computer database and the computers are made somewhere else.
dump the FED...... print GREENBACKS
We Cannot Raise Rates Because…
Fed Out of Financial Markets...
Newsflash: “Imperfect World”...
ZIRP Will Save the Planet! ...
Unintended Consequences & History of Fed Interventions...
Ask Yourselves Why the Minimum Wage Needs to be raised So Much?...
The Tradeoff: Deferred Gratification a Sign of Competence...
These must be the "missing" Guidestones in Georgia!
"Ask Yourselves Why the Minimum Wage Needs to be raised So Much?"
I have. It doesn't...at all. Support for government price controls on anything is IMBECILIC...especially the cost of money via an "independent" central bank.
Right on, I was actually shocked to read the line "I agree that the Minimum Wage needs to be raised" in this article. WHy would we want to raise it and put more people out of work? Basic supply and demand.
It IS laughable. I am taking a big chunk of TLT profits this morning. How's that tbond short treating you.
I told you to get out with what you could.
But nooooooo.
Ouch.
The wailing, and the gnashing of teeth, and the tearing of hair, and the hangings and gassings are all gonna be AWESOME!
Actually there are about 60T reasons in the US.
There are 17 Trillion reasons for not ending ZIRP, and every day more are piling up
Dont you think if the FED COULD raise interest rates they would have done so already ??? They know they cant because there would be a massive stock market selloff followed by an economic crash.
Then both parties in Congress would get together and vote to abolish the FED, or put tight auditing/restrictions.
Its not every day where you have both Bernie Sanders and Rand Paul together saying audit the FED.
ZIRP is here to stay and so is the FED's buying UST as needed. It's the way the GOV can print money out of thin air PERIOD, because the FED rebates the interest back to the GOV. ZIRP provides the banks with cheap money they then lend at 24% to serfs who can't get by without a return on savings, or just can't get by on their low wages. Those that can get by are herded into stocks to make them feel wealthy and keep spending all that getting by money. As the boomers are forced to liquidate to get by, and crashes the market, it's game over.
It isn't rocket science. It is the Japanification of the entire developed world. Europe is following Japan a decade behind and we're about a decade behind them. Politicians will always take the easy way out, and modern central banking has given them a way to maintain their welfare states without having to actually earn the money to pay for them. Inflation doesn't exist (in a meaningful way) because the first world economies are all in permanent recession, which allows the CBs to keep borrowing rates at zero, which in turn allows the governments to fund welfare spending with incessant borrowing. Of course it can't go on forever but it can go on almost indefinitely, as long as we keep electing free money can kickers to positions of leadership.
We are not electing them. They are selected and then presented to the larger population to choose which flavor we want. Those are two different things. Whoever thinks that a vote between two pre-selected acceptable candidates is a real vote is feeding the ignorance that allows TPTB the latitude to continue screwing us all. Sadly, that includes many of my friends and family, all educated serious people. Hard to accept we're being played, I guess.
"We are not electing them. "
Indeed.
In the case of Presidential Elections it is the Electoral College that chooses the President and Vice President.
In rare cases where the Electoral College fails to make the choice due to dead-lock the matter is decided by the House of Representatives. In the case of dead-lock in the House the matter is then deffered to the Senate.
http://en.wikipedia.org/wiki/Electoral_College_(United_States)
"The United States Electoral College is the institution that officially elects the President and Vice President of the United States every four years. The President and Vice President are not elected directly by the voters. Instead, they are elected by "electors" who are chosen by popular vote on a state-by-state basis.[3]Electors are apportioned to each state and the District of Columbia, but not to territorial possessions of the United States. The number of electors in each state is equal to the number of members of Congress to which the state is entitled,[4] while the Twenty-third Amendment grants the District of Columbia the same number of electors as the least populous state, currently three. In total, there are 538 electors, corresponding to the 435 members of the House of Representatives, 100 senators, and the three additional electors from the District of Columbia.
Electors are almost always pledged to particular presidential and vice presidential candidates, though unpledged electors are possible. Except for the electors in Maine and Nebraska, electors are elected on a "winner-take-all" basis.[5] That is, all electors pledged to the presidential candidate who wins the most votes in a state become electors for that state. Maine and Nebraska use the "congressional district method", selecting one elector within each congressional district by popular vote and selecting the remaining two electors by a statewide popular vote.[6] Although no elector is required by federal law to honor a pledge, there have only been very few occasions when an elector voted contrary to a pledge.[1][7] The Twelfth Amendment, in specifying how a President and Vice President are elected, requires each elector to cast one vote for President and another vote for Vice President.
The candidate that receives an absolute majority of electoral votes (currently 270) for the office of President or of Vice President is elected to that office. The Twelfth Amendment provides for what happens if the Electoral College fails to elect a President or Vice President. If no candidate receives a majority for President, then the House of Representatives will select the President, with each state delegation (instead of each Representative) having only one vote. If no candidate receives a majority for Vice President, then the Senate will select the Vice President, with each Senator having one vote.
Critics argue that the Electoral College is inherently undemocratic and gives swing states disproportionate influence in electing the President and Vice President. The Electoral College gives a numeric advantage in the election of the president to the smaller states, as the minimum number of electors for the small states is three compared to one for the election of representatives. On the other hand, the winner-take-all method of voting favors the larger states. On four occasions, most recently in 2000, the Electoral College system has resulted in the election of a candidate who did not receive the most popular votes in the election.[8][9] A number of constitutional amendments have been proposed seeking to alter the Electoral College or replace it with a direct popular vote.[10] "
It should be noted that both the Democratic and Republican Parties have utilized all manner of gerrrymandering, that is: voter district shaping, and the use of ballot restrictions ov various kinds, to preclude the inclusion of Third Party Candidates from appearing on the ballot in all manner of Elections from the national to the local..
We need to go back to the days when only property owners could vote rather than voting by mob rule.
... and at that point you will be surprised at how few people actually "own" property. Or you might find that votes are distributed proportionate to acreage.
How do you know it doesn't already work like this?
Exciting!!! Hell,why would you want to be part in a boring movie? You may actually get to kill people or have people trying to kill you before this is over. The beauty of it all is that thanks to human nature it will be no different next time either unless we radiate the planet to total extinction.
The US Fed can not now or even in ten years from now rise the rate. This talk that the US Dollar is strong, thats Bullshit. It's as weak as Piss and it wants to go down, but cannot, because all other Currencies are stuffed. Specially the Euro and the Yen, even the Pound Sterling. Take away trading in Dollars and it will become the Scheissdollar, only good for wiping a special part of your Body. A Dollar to strong wipes out exports like Aircraft and lots of other goods that are much cheaper to make in low cost Countries. Imports will get very cheap, but how are you going to pay for them? With Chines Money, or with Gold that is stored in Ford Knox? Is any of it left by the way, Germany would know for sure. Feel much better with my Aussie Dollars here.
There are two reasons:
1. Not since the 1920s has there been such an overhang of derivatives (bucket shop bets) that have a multiplying effect on any action the Fed takes. To make themselves look solvent on paper, the banks stole from the future, using derivatives. Raising rates will unhinge the derivatives, having a multiplying effect on the banks.
2. It is not time. IMO, as a part of a plan to create a global currency and global financial state run by technocrats, both the dollar and Fed will be destroyed under the cover of some other event. Obviously the Fed will re-emerge later as a unit of the global system.
ZIRP is really not a bad idea if it is used properly. Unfortunately it has been used in absolutely the wrong way for the benefit of a few ... through asset inflation and giving the banks and their cronies an unearned 3% annually on all money created.
ZIRP is the equivalent of giving an adrelinine shot to someone having a heart attack.
ZIRP is the equivalent of the paramedic putting the oxygen mask on himself and wondering why the patient still ain't breathing ... so then he applies CPR and defibrillator ... again ... to HIMSELF!!!
ZIRP is the drug that feeds governments. It is like asking an addict to tell you when it is an optimal time to tapir down the drugs. Somehow, no particular day looks to be quite the right time.
They know what will happen if they start raising rates, the government budget will become unsupportable and something will be have to be cut but almost all the budget goes to bribing the masses with bread and circus's and we're about to run out of rainbows and unicorn pee.
You wander into a small town in the middle of nowhere, population eleven. No imports, no exports and ten people work there and make one hundred dollars per week each. The eleventh guy - no-one knows what he does, but he makes one hundred thousand dollars per week. How?
You know it doesn't make sense. I know it doesn't make sense. Oh yeah, and rents are one hundred dollars per week, mortgages are two hundred dollars per week. But everyone seems to live in a house and is well fed. How?
You have entered ... The PT Zone.
(PT Zone? Phucked-up Twilight Zone? I never thought of that when I chose my alias but it'll do for this little story.)
It's NIRP , these Fed bastards know it! We are all seeing 5-10% annual inflation. Why does this country of idiot sheeple put up with this corruption?
Look past all the hype. The real answer is imbedded in the article. Accept this truth and you can come out whole on the other side: "....it seems a deliberate suicidal plan."
No, you can neither tapir down the drugs nor ostrich stimulus programs any longer, as you'd be guilty of financial elephantism. Indeed, it's a veritable jungle of consequence!
There is $3 trillion in excess reserves.
EconMatters talks as if this stuff matters. Quit blabbering about the symptoms and start focusing on the cause: Who creates "money?"
they gonna have to NIRP this mothuhfuckuh, bitchez...lol
they can't raise rates. Well, they can do it...but it would be way too bloody to last long. Raising rates is economic ebola now. Lowering rates was the same thing.
But that's what you get from these central planning fuck-tards. The more they manipulate and control in either direction the more financial ebola they spread.
Game over for them.
Prepare accordingly and keep adding phyzz to your stacks!
We are Japan now. Said it for years and believe it. Actually we are worse, because our bubble is bigger and the banks are still playing games using the FED as their drug dealer.
That is why Goldman became a bank afterall. It was done under Hanks and Neel Kashkari's bailout plan. Both from GS. We have done the first decade of no growth.
Now we enter the second decade. Keep stackn'.