This page has been archived and commenting is disabled.
If "Everything Is Awesome", Why The Alarms Over A Slight Rate Hike?
Submitted by Omid Malekan, via Op-Ed at The Wall Street Journal,
Imagine you have a serious illness and have been taking medication that was supposed to cure you long ago. After being on the maximum dosage for years you start to feel better, so you ask your doctor if you could roll back the dosage, ever so slightly, to alleviate some of the side effects. He says that would be fine—but then a pharmaceutical rep tells you that doing so would be dangerous. Whose advice would you follow?
This resembles the situation today as the Federal Reserve signals its intent to start raising interest rates, ever so slightly, after six years of near-zero rates. This extraordinarily loose monetary policy was introduced in late 2008 when the global economy was in free fall. U.S. gross domestic product was plunging, the unemployment rate was rising and would soon climb above 10%, and in March 2009 the Dow Jones Industrial Average would fall below 7000.
Although at the time few could argue with the need for such extraordinary Fed action, the U.S. economy today has been growing for several quarters. Unemployment is below 6%, and the Dow recently reached an all-time high above 18000. An outside observer might think that taking some modest steps back toward a normal monetary policy is a no-brainer. Not so. Within and outside the Fed there is a great debate as to when, and sometimes whether, the Fed should start raising rates, even by a trivial amount.
Charles Evans, president of the Chicago Fed and a voting member of the board that determines rate policy, said last month that raising rates too soon would be a “catastrophe.” Former CEO of General Electric Jack Welch , during a Feb. 4 interview on CNBC, called a possible spring rate hike “ludicrous.” Billionaire investor Warren Buffett told Fox Business Network on the same day that he didn’t think a rate increase this year would be “feasible.” Catastrophe. Ludicrous. Not feasible. Really?
It might help to put this into historical perspective. According to the Fed’s own monthly data, for the five decades (1954-2007) leading to the current rate-cut cycle, the benchmark, overnight federal-funds rate averaged 5.7%. In the 1980s the rate went as high as 19% and in the early 2000s, after the dot-com crash, it went as low as 1%. But the 5.7% average is the number that withstood the Vietnam War, the Cold War, the stagflation of the 1970s and the boom of the 1990s. Since December 2008 the fed-funds rate has been kept close to zero.
The Fed’s proposed increase would take the fed-funds rate from near zero to about 0.25%, and no that isn’t a misplaced decimal point. We aren’t talking 2.5%, which would still be less than half the 1954-2007 average. We are talking 0.25%, which would mean the Fed’s monetary policy would be rolled back from full pedal-to-the-metal to a fraction above pedal-to-the-metal. On a historical chart of the fed-funds rate, the proposed hike would barely be visible to the naked eye. Does that sound like inviting catastrophe?
The adage about academic politics—that they’re so intense because the stakes are so low—can now be extended to the current wrangling over monetary policy. After all, if the Fed’s stimulus program had been a great success, or at least had come close to its own original growth forecasts, there would be no debate today. The economy would be booming, and maintaining maximum monetary stimulus would be viewed as dangerous. The only debate left would be when to end all stimulus, not whether we should start to curtail it.
The fact that there is a debate about a quarter-point rate hike tells us that extraordinarily low interest rates have mostly failed to deliver a robust recovery. That people opposed to even the tiniest increase in rates are resorting to hyperbole tells us that they too know this. The thinking seems to be that six years into near-zero policy, the only reason it hasn’t worked is because it hasn’t been tried long enough.
Meanwhile, the dangerous side effects of year after year of artificially low rates continue to grow. Some asset markets have reached historically high valuations and investors have to keep reaching for riskier investments to earn a decent return. Savers continue to be deprived of interest income. Whatever good came from the policy prescription when the economy was ailing, the time has come to change the dosage.
»
- 7766 reads
- Printer-friendly version
- Send to friend
- advertisements -
VIX:
My eyes!!
My eyes!!!!!!
The issue ENTIRELY IGNORED by this post, is the international factor. If the Fed raises rates, due to other countries exceedingly low rates, it will set up a carry-trade positive to the US dollar. This will have the effect of severly impacting economies dependent on imports, especially energy, for the worse, and especially in the short run. Gasoline already costs $5/gal in Japan. With the Yen at 150/USD, it will be worse. The US can carry the world on its back for awhile, but if the burden gets heavier because their economies suffer further, the RoW will drag down the US and not the opposite.
Fuck the RoW. There is only so much that can be managed, period.
OK, well, raising rates will also hurt the U.S. economy, both by curtailing capital investment and by whatever you want to call the opposite of the wealth effect. Basically, I see the Fed raising rates at this point as a lose, lose. The other big problem is this: faith in CBs around the world, including in the Fed, is faltering. If the Fed has to raise rates and then reverse course, that will reduce the sheeple's faith that much more. As much as some peeps might want to see the Fed finally get it's comeupance, ain't nobody wants to deal with the societal consequences that follow from a true economic collapse, the kind that happens when people truly lose faith in their currency and banking systems, the likes of which we could shortly see in Greece if they and the ECB don't get their shit together.
BTW, if you live in Hong Kong, you are now *officially* a "sheep." It's the year of the sheep, ya know? So do your duty and act like one.
http://www.telegraph.co.uk/news/worldnews/asia/hongkong/11419436/Hong-Ko...
If you strike a concrete abutment at 100 mph, are you more dead than if you struck it at 60 mph...?
Doing the math, obviously your 40 mph more dead at 100.
And the issues entirely ignored by the Fed are demographics and debt. And this after people have yelled loudly about the lack of creation of babies in the developed world and Harvard professors wiriting seminal works about the crushing economic effects of debt. They are sofocused on their models and cute econometric theories they cannot see the forest for the trees. The solutions to neither of the twin problems weighing on the world reside in the Eccles building. We live in a mad mad world populated by people that like to be lied to.
Talking my book here, but screw it it. I'm buying VIX here. Seriously we're on the verge of WWIII, economically we're screwed and glued as well, and our political class is fiddling while it all burns. VIX has more of a favorable risk/reward profile than anything else I can trade.
<Edit: I forgot to mention that while all this is going on.... "Everything is Awesome">
All that matters to Yellen and the Donor Class is NFLX $500, NASDAQ 5000, TSLA $1000, they are thieves.
O’Reilly: Obama’s living in a ‘fictional world’
http://tinyurl.com/olzoolz
Tom Brokaw's "The Greatest Generation" fought WW11 and won and then came back and worked hard to build this country into an economic powerhouse. Something tells me those men and women wouldn't put up with this bullshit today.
Duh.
If the motor of economic growth and function is burnt out, no amount of cheap and plentiful fuel is going to do any good.
the motor needs a complete overhaul but the the only tool they have is a really big hammer.....
If the motor is made of gold then that really big hammer is all they need
I can no longer expect anyone invovled with the Fed or Government to even consider doing the right thing.
They can't raise rates yet. The transfer of wealth from the middle class to the fat 1% isn't quite complete.
"...at the time few could argue with the need for such extraordinary Fed action..."
The few, the proud, the correct could and did.
Keynesianism requires that the downside be filled.
We must fill in the downside.
Once the business cycle has been destroyed, everything will be good.
Yes, everything is wonderful. Who am I to question the head Jews? I'll just keep buying shitty trinkets on my 18% APR credit card.
"I just lost my job; its a new opportunity;
To spend more time with my awesome Community!"
Everything is awesome:
https://www.youtube.com/watch?v=StTqXEQ2l-Y
Lost mine last year and quite 3 shit jobs so far yesterday lasted 1hour so watch out for these employers they are being other than honest about what they are paying and the work they want you to do for shit money. I thinking about leaving for the mountains
"raising rates too soon would be a 'catastrophe.'"
In the era of the new feudalism, banksters earn massively through at least 3 ways:
1. Low interest rates
2. QE
3. Taxes
Meanwhile, the rest 99% suffers from poverty, unemployment, inequality, social exclusion.
These greedy fuckers should raise interest rates to 20% and reduce regulation and taxes to 1%. The economy would take off faster than Obama's pants when Reggie enters the room.
ze goggles do nothing!
raise it a quarter of a point then print like hell to cover it. That way some pol can claim the recovery is doing so well we had to increase interest rates. Next please.
The parasites have already killed the host.
Their fake financial life support is no longer able to keep the putrid decaying carcasses smelling fresh and rosy.
author fails to mention strength of $US
raising rates will be steroid for King Dollar
(further dampening exports and importing deflation)
The cruel irony however, is that the vaunted 'strength' in the $USD lies entirely out of our control, but your're fooled into thinking it is...
Although at the time few could argue with the need for such extraordinary Fed action, the U.S. economy today has been growing for several quarters
I could. I always said hang them to dry because if you don't, well, the same stupid people will be around running the show. Lo and behold, that's what we've got, and 6 years into it.
It looks like the markets think the Fed. minutes are going to be slightly hawkish based on the +.5% move up in the usdx over the last 6-7 hours.
What a pathetic game of shadow puppet theatre we're stuck in.
House of Mirrors built on a House of Cards with a Domino foundation on a Grecian cliff.
Wow.
Now today...which based on his work title probably means he already has sold his stawks.
I may get out of US stocks: Nobel-winner Shiller
http://www.cnbc.com/id/102434722
Punch & Judy...?
The true believers keep telling me that we should do this until we see inflation. They also don't believe that M2 is a credible metric, however they do tend to subscribe to more taxes on the "rich." So I guess the plan is to ignore that monetary policy is concentrating made up money in upper quintiles but then take it away from them through taxation to spend on our nearly insolvent social programs while declaring that the economy is the best evar and the recoveryTM was a huge success.
Also, any mention of full time jobs means that "you're reading the reports wrong." Incorrect reading is also a factor when you compare the teenage unemployment rate with the number of 55+ still holding a job... because the boomers are definitely retiring. Any other analysis is incorrect because the economy couldn't be this AWESOME unless it is.
I'm thinking about going fully passive aggressive and celebrating every new bubble peak with even more gusto knowing that things that can't go on forever probably won't...
The smartest guys in the room are freaking out about .25 of 1 percent. We are so past the point of no return it isn't even funny anymore. Europe will never repay their collective debt, Japan is in even worse shape, and anyone (Krugman) that thinks you can owe yourself money is just plain insane. I would love to be able to owe myself 2 million dollars and when someone finally realizes I can't pay myself back float me another loan.
If .25 of 1 percent is going to bring Armageddon on, its already to late.
I have been thinking about this topic lately, and, I have come to the conculsion that there will be a rate hike.
They have to do it to "prove" that the economy is "strong" and can handle the rate hikes.
Rate hike will be "faked" like everything else.
They will telegraph the move, open discount windows with more swap lines, twist some arms behind the scenes, slam down gold big-time again, and just print into the selling pressure to keep markets up.
Market will wobble a bit, then stablize maybe a few points down (2 - 4% maybe), and the Fed will then declare "success"
Shortly thereafter, Another big pump then "everything is awesome" again, and a feather in the cap for the fed.
I keep telling everyone that if things are so good, raise rates.
Or another way - are things only 'so good' because rates are 0%?
Either way, let's not forget the person on this board who said it first -
"Central Banks are masters at painting themselves into a corner".
Omid Malekan, the guy who coined "The Bernank" in one of his videos hehe.
When all you have is a hammer, everything starts to look like a nail...
When all you have is a nail gun everyone starts to look like a bankster...
Four legs good...two legs...better
What fool would take the advise of WB or Jack Welch? They are part of the 1% that continue to game the system and fall back on the moronic US taxpayer when things don't go their way. Neither one of them knows what 'money' is or so they pretend. Thery are part of the 'Status Quo' that has to go.
As for those Pinko Commies running the Fed, of course they know that raising rates will destroy what 'growth' is left of the world economy. Their actions should be grounds for treason. Why? Because it was the actions of the Fed (since 1913) that brought us to the problems that revealed themselves for all to see in 2008. It is the Fed that is ultimately responsible for this whole mess. Had we stayed on a gold standard, growth would likely have been only 2% or so per year but we would not have the debt and derivative problems we have now. By the same token the 'FIRE' class would not be what it is today either---a group of parasites that produce absolutely NOTHING and get wealthy for it.
You want to know the 'cause' of poverty and injustice in the world? Just have a thought on a group of unelected 'people' who can create 'money' out of nothing---with no labor to do it, spend it first along with their cronies---and you will see this fact. In this modern world there should be no poverty. The injustice aspect is self-explanatory.
Not only is the Fed unconstitutional, but it is also immoral, unethical, and evil. And so are all branches that grow from it.
Anyone not screaming to end this disease is part of the problem and should be held as aiders and abettors of the whole criminal sham.
And just like being ignorant of the law does not excuse one from punishment from breaking it, being ignorant of the actions of the Fed is not to be excused---especially when the internet has exposed the fruits of their 'labor'.
Starve the Beast (the 'system' that originates from the creation of money out of nothing) and do not give up on pointing these things out to those near and dear to you...
Everything IS awesome... when you're part of the team (banksters, govt, etc..). Unfortunately, 99.90% of the population is NOT part of that team.
Imagine how Fed policy will affect a country that has had a trade deficit for more than 30 years. Oh, wait, that's the USA.
Mortgage Bonds are up 34 bps. 10y dead cat. All is good.
I LMAO when I saw the -0.8 print on PPI this a.m. The deflation that should have occurred in 2008 is now here. People aren't buying shit, they don't have any money. They can't afford houses with their shit jobs- working 29 hours a week. I honestly can't think of how our government could have fucked our economy up any worse than it is.
They can't raise rates. Maybe by 1/4 or 1/2 then it will stop for 10 years. We are Japan (dead money) with a stock market worth 4 times it's actual value.