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The Central Planners Have Bet the Financial System on Unproven Theories
The Fed has bet the financial system on academic theories, that upon close inspection defy even basic common sense.
One could easily write a multi-volume set of books on the Fed’s mistakes. However, in its simplest rending, the biggest flaw in the Fed’s models pertains to its total lack of understanding of human behavior.
The Fed believes that if interest rates are low, investors will seek out higher returns by piling into stocks or even real estate. As these asset prices rose, the investors would feel wealthier and so go out and spend more money… which in turn would drive the economy towards growth (70% of US GDP stems from consumer spending).
Of course, the Fed’s model is far more complicated than this, involving all kinds of “clever” math equations… but ultimately the Fed’s recipe for growth is “cut rates and if necessary, buy bonds with newly printed money and growth will appear.”
The only problem with this all of this is that people buy things with income not based on where their stock portfolio is trading (assuming that have a portfolio, but that’s a issue for another time).
When you go to buy groceries or a new suit, you don’t stop to think where stocks are trading. You think about how much money is in your bank account based on your salary… or you use a credit card and project that you’ll have the money to pay off your debt down the road.
After all, the money you “make” from higher asset prices isn’t actually real money unless you sell the asset. You cannot go into a store and offer to pay your bill with part of your stock portfolio. And most investors have the bulk of their portfolio money in 401(k)s, IRAs, and other investment vehicles which they cannot easily convert into cash without facing a penalty.
Who on earth thinks “I will buy this item today because stocks are up and several years from now (possibly decades) I will sell my stocks and have a lot of money”??? No one but Fed officials apparently.
So while the Fed’s policies haven’t generated any significant growth, one thing they have accomplished is a total mispricing of risk in the financial system. Again, the reason for this has to do with the Fed’s complete and total lack of understanding of basic human nature.
When the Fed began announcing QE programs, the single most obvious trade in the whole world became “front-running the Fed.”
In this trade, traders would buy Treasuries at Treasury auctions only to then turn around and sell the bonds to the Fed a few days (or maybe a week or two) to the Fed. After all, if you know that someone else is going to be buying bonds at a certain date and time in the future… and you know they’re not going to be too picky about the price they pay…why not try to game this system to eek out a profit?
By piling into bonds, traders forced prices higher and yields lower: precisely what the Fed wanted. These folks were looking for profits while the Fed was looking for lower yields (meaning higher bond prices). It’s a match made in heaven.
So how screwed up is the risk profile in the world? Today, the yield on the 10-year Treasury (the benchpark for riskless money according to modern financial theory) is yielding less than 2%
If you were to go all the way back to 1790, the yield on the 10-Year Treasury (or its equivalent at the time) has been lower than it currently is only one time before the Fed started its QE programs, and that was in 1945 at the end of WWII.
Treasuries actually yielded MORE than they are now in the depth of the 2008 collapse when everyone thought the world was ending.
These bonds are the benchmarks for “risk” in the financial system. Stocks, corporate bonds, mortgages, auto loans, emerging market stocks… everything you can name are ultimately priced based on their perceived risk relative to the “risk free” rate of lending money to the US for 10 years.
And believe it or not, Treasuries are actually one of the BETTER bonds to own from a yield perspective. Globally over 45% of Government bonds yield less than 1%... and €2.1 TRILLION in EU bonds now have NEGATIVE yields.
Put another way, the financial landscape is now so screwed up by the Central Planners, that investors are actually INCINERATING their money by lending it to Governments.
What’s coming will be the largest Crisis in financial history. Globally the bond bubble is over $100 trillion in size. It literally dwarfs stocks.
And the ENTIRE bond market is mispricing risk.
This mess will burst just as all bubbles do. And when it does it will be ENTIRE COUNTRIES, not just banks that go bust.
If you’ve yet to take action to prepare for the second round of the financial crisis, we offer a FREE investment report Financial Crisis "Round Two" Survival Guide that outlines easy, simple to follow strategies you can use to not only protect your portfolio from a market downturn, but actually produce profits.
You can pick up a FREE copy at:
http://www.phoenixcapitalmarketing.com/roundtwo.html
Best Regards
Phoenix Capital Research
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Love the Graham Summers.
SERIOUSLY!!!
Well, it's not disproven exactly. They're going by the example of before 2008, when suckers who didn't realize their crap McMansion built from chewing gum and tissue paper wasn't worth a million dollars on any planet in the galaxy were taking out home equity loans. Then rises in paper wealth did impact consumption by normal peeople.
Times have changed. Now the only people whose wealth increases in response to QEeleventy are people who already own all the suits they could ever wear. The money goes straight offshore, stimulating consumption in Switzerland and China, not in the US or Euroland.
Their theories are their apologies for their stealing.
I picked up my free copy several years ago, and it's cost me my entire savings, retirement, christmas club, my GF left me with the dog, and I'm living under a box in Compton, cold, hungry, and sipping Ripple in a paper bag.
Y' happy, now?
De 3e SpinozaGolf is niet te stoppen: "Als je in deze eeuw leeft en samen met je kinderen beseft dat het systeem 'Liegen om te Leven' geen uitzicht meer biedt voor een vreedzame toekomst, dan stem je op hem die je een @basisinkomen belooft".
http://www.neurope.eu/article/love-me-tender#comment-1230115336
RuitenVrouw: "Als je in zo’n crisis leeft en samen met je kinderen geen uitzicht meer hebt op een toekomst, dan stem je op hem die je een gouden toekomst belooft".
http://www.telegraaf.nl/reiskrant/23887948/__Kom_naar_Griekenland___.html
Rebellen in het oosten van Oekraïne willen dat de VN het systeem 'Leven en Laten Leven' gaat invoeren met een @basisinkomen voor iedere wereldburger. De Oekraïense regering komt (in tegenstelling met de Griekse?!?!?) haar verplichtingen niet na en betaalt geen uitkeringen en pensioenen meer aan mensen die het GEWELD=MACHT-principe blijven uitdragen.
http://www.telegraaf.nl/buitenland/23887773/__Rebellen_Oekraine_bezorgd_...
Burgemeesters uit Brabant en Limburg kregen al een training in waarheiddelen aangeboden. Dit om zich weerbaar te maken tegen geweld, agressie, bedreiging en intimidatie van mensen die zich benadeeld voelen door de 3e SpinozaGolf.
http://www.nrc.nl/nieuws/2015/04/04/bedreigde-burgemeesters-kunnen-jiuji...
Een hoge Palestijnse functionaris is al op de hoogte gebracht dat 'de hulp van de VN' niet zozeer moet bestaan uit 'voedsel, water en medicijnen', maar uit de invoering van het systeem 'Leven en Laten Leven'.
http://www.nrc.nl/nieuws/2015/04/04/alarm-om-situatie-palestijns-vluchte...
De Verenigde Naties zijn dus op de hoogte dat Syriërs en Palestijnen in het Palestijnse vluchtelingenkamp Yarmouk in Damascus op de hoogte zijn van ...
http://www.nrc.nl/nieuws/2015/04/04/pandjesbazen-misbruiken-airbnb-runne...
Living Capital is niet de enige bemiddelaar die sPionnen van de 1 aan onderdak helpt.
I'm pretty sure that I agree with everything you wrote, being an optimist.
Now everything's a bubble and the new crash is around the corner.
Throw enough darts one of them is bound to stick.
But actually helps in no way what so ever.
Be prudent with your money.
Work hard at getting others.
Nothing is free.
Make sure your 401k has a stop loss.
Cut back do you need 5000 ch of tv.
5 phone lines.
An once of killer weed a week really,
Find a pension and an annuity.
Go fishing.
When he goes "to buy groceries or a new suit", I wonder if the guy at Phoenix Capital Research thinks much about the $199.00 in his account that he tricked me out of??
I was completely fooled by their cleverly worded but deceptive promotion of a trial service;
"CLICK HERE TO TAKE OUT A $0.99 TRIAL SUBSCRIPTION"and; "The offer is that you will pay $0.98 now to explore this newsletter for 30 days."
Although the offer is described as a trial subscription, it is nothing of the sort. This is a 13 month subscription, with an option lasting 30 days to opt-out. After paying $0.99 your account will be automatically debited $199.00 if you do nothing within the 30 day opt-out period - no recourse. Read the contract buddy and thanks for the new suit!!!
You can use a prepaid Visa card for things like this ... you can buy them for $1 plus the dollar amount you load onto them at Dollar Tree (DOLR).
"Opting Out" is the most popular way for sellers to create cash flow- from your bank account to theirs.
It is deceptive and dishonest.
You can only be clipped until you are weened. I take it you are weened now.
Unproven theories that made them, their family members and all their friends and business associates rich. That's the key point. These weren't just random unproven theories. Nor were they the unproven theories most likely to help a broad range of people. They were the specific unproven theories that were guaranteed to funnel wealth to those already wealthy.
"He who has the gold makes the rules"
Economics is the best way to steal, since you won't get shot (we can always hope!).
Why would that be? trickle down. The most disproven theory.
OH MY GOD!!!
PHOENIX CAPITAL'S 889th TEOTWAWKI ARTICLE IN THENLAST 973 DAYS!!!
Of course Human Behaviour is the essence of "economics" - economics is the expression of Human beahviour.
inanimate objects such as fial paper and coin are just that - inanimate objects - devoid of substance. Paper and coins DO NOT create cycles.
Energetic forces - such as Human Beings - create cycles and contain temporal signatures through gestures and expressions which can be/ should be interpreted.
In the case of the "markets" human behaviour may be measured - qualitatively.
Where the term "money" is etymologically defined as the integrity of a trade between one or more parties, today's markets and money, through the market gyrations and volatility being experienced, are depicting grave insidious behaviours and a significant change about to collapse a rotted and decadent system.
Behaviour
http://verbewarp.blogspot.de/2015/03/fiat-currency-and-human-behaviour.html
on Money
http://verbewarp.blogspot.de/2012/05/on-money.html
The academic pursuit "Economics" is just a faith-based cult founded upon opinion, superstition and bankers' political expediency and expressed as dead dogma.
Why? The Banking System has usurped the Throne of the King and its Word is the Law - that rules over society. It does what it likes and prefers a "risk free" milieu that comes from totalitarianism - this is where we are being led.
simple really
Ho hum
A Great website, thanks so much for the link. Agree all you say - can say no more:
www.harrogateagenda.org.uk
Nothing New Under The Sun.
- I don't know enough History, INTL Economics, INTL Finance
- I think TPTB understand Effects, but they compete with others, they own CBs, they own Governments, the industry is in accord, the Cartels agree on Pricing & expected prices, the Environment is very Predicable, that is why we see Oligopolistic Behavior
- It IS a sign of Empire or Oligopoly, Every Player has hard Expectations, but they can be played on the other side, there is WEAKNESS here
Trying to create inflation with all these near zero (some lower, some higher) bills, notes and bonds doesn't seem to make much sense. Nothing will cause the bonds to be dumped faster than high inflation will.
To get inflation the money has to flow through the actual economy but the FED's magic money never even comes close to it. Of course Wall St. and the mega-banks are doing well.....
Blinker fluid?
Does anybody but me realize that "Theories" are by definition "Unproven", for if a "Proof" is found with regard to the "Theory", it then becomes a "Theorem".
Just pointing out the grandiose misuse of the "proven theory" meme in today's world.
Unproven + Theory = Redundancy ... like "That dumbass Paul Krugman" Either Dumbass or Paul Krugman stand alone very well, thank you.
Magical calculations based on hopes and wishes are the Krugmeisters stock in trade and his answer whenever one of his pronouncements is shown to be utter bullshit is we didn't throw enough money at it.......
So Paul Blinker fluid Krugman is out? Darn it had a nice ring to it.