This page has been archived and commenting is disabled.
Bank Of America Begins 66-Day Countdown Until The "Ghost Of 1937" Returns
In 66 trading days on September 17, 2015, the Federal Reserve will, according to Bank of America, hike rates for the first time since 2006, which according to BofA will "end the era of excess liquidity."
We disagree entirely, but let's hear what BofA's Michael Hartnett has to say:
On September 17th the Fed will hike the Fed funds rate by 25bps according to Ethan Harris & our US economics team, the first hike since June 2006.
Recent US economic data support this view, in particular the solid May payroll & retail sales reports. Note that after a Q1 wobble, one of our favorite cyclical indicators, US small business confidence, has also bounced back into expansionary territory. Ethan Harris forecasts 3.4% US GDP growth in Q2, after 0.2% in Q1, and US rates strategist Priya Misra forecasts a Fed funds rate of 0.5% by year-end, and 1.5% by end-2016. Like Ethan & Priya, the futures market also looks for a modest Fed tightening cycle: Eurodollar futures contracts are currently pricing in 3-month rates in the US rising from 0.01% today to 0.65% by year-end, and to 1.54% by end-2016.
Yes, the US economy is so strong the Bureau of Economic Analysis has to fabricate double seasonal adjustments to goalseek GDP data that is non-compliant with the narrative. As for economists being wrong about a rate hike, or overestimating future US growth, let's just say it won't be the first time they are wrong...
Still, one thing BofA is right about: this time the normalization process will be different.
Past Fed performance is no guide to future performance
Gradual or otherwise, the first interest rate hike by the Fed since June 2006 marks a major inflection point for financial markets. Three reasons suggest that the impact of higher Fed rates will be far less predictable than normal, that historical comparisons may be less powerful, and that volatility across both credit & equity markets should continue to be owned.
Actually, the main reason is one, and it is very simple. It is shown in the chart below.

Here are some other reasons why the Fed's rate hike will lead to a period of, to put it mildly, volatility which "will mark the beginning of the end of massive monetary easing and a collapse of interest rates to effectively zero across the globe, and follows a humungous bull market in both equities and credit in the past 6 years:"
- Central banks now own over $22 trillion of financial assets, a figure that exceeds the annual GDP of US & Japan
- Central banks have cut interest rates 577 times since Lehman, a rate cut once every three 3 trading days
- Central bank financial repression created $6 trillion of negatively-yielding global government bonds earlier this year
- 45% of all government bonds in the world currently yield <1% (that’s $17.4 trillion of bond issues outstanding)
- US corporate high grade bond issuance as a % of GDP has doubled to almost 30% since the introduction of ZIRP
- US small cap 5-year rolling returns hit 30-year highs (28%) in recent quarters
- The US equity bull market is now in the 3rd longest ever
- 83% of global equity markets are currently supported by zero rate policies
Put simply, central bank's provision of liquidity for financial markets has been unprecedented. The extent of Wall Street addiction to liquidity is about to be revealed and the potential for unintended consequences is clearly high.
Which is not to say that attempts to "renormalize" rates are unheard of: previously both Israel and the RBNZ tried it and failed, with markets promptly forcing them to reverse tightening.
More notably, it was the ECB itself which in April of 2011 under Jean-Claude Trichet tried to halt Chinese inflation exports in their tracks, and pulled off one rate hike... before the wheels came off from under Europe and the continent promptly entered a double dip recession, leading not only to a return to ZIRP, and the replacement of Trichet with an Italian Goldman Sachs apparatchik, but ultimately pushed Europe into its first ever NIRP episode.
But no episode is more notable than what happened in the US in 1937, smack in the middle of the Great Depression. This is the only time in US history which is analogous to what the Fed will attempt to do, and not only because short rates collapsed to zero between 1929-36 but because the Fed’s balance sheet jumped from 5% to 20% of GDP to offset the Great Depression.
Just like now.
And then, briefly, the economy started to improve superficially, just like now, and as a result the Fed tightened in a series of three steps between Aug’36 & May’37, doubling reserve requirements from $3bn to $6bn, causing 3-month rates to jump from 0.1% in Dec’36 to 0.7% in April’37.
Here is a detailed narrative of precisely what happened from a recent Bridgewater note:
The first tightening in August 1936 did not hurt stock prices or the economy, as is typical.
The tightening of monetary policy was intensified by currency devaluations by France and Switzerland, which chose not to move in lock-step with the US tightening. The demand for dollars increased. By late 1936, the President and other policy makers became increasingly concerned by gold inflows (which allowed faster money and credit growth).
The economy remained strong going into early 1937. The stock market was still rising, industrial production remained strong, and inflation had ticked up to around 5%. The second tightening came in March of 1937 and the third one came in May. While neither the Fed nor the Treasury anticipated that the increase in required reserves combined with the sterilization program would push rates higher, the tighter money and reduced liquidity led to a sell-off in bonds, a rise in the short rate, and a sell-off in stocks. Following the second increase in reserves in March 1937, both the short-term rate and the bond yield spiked.
Stocks also fell that month nearly 10%. They bottomed a year later, in March of 1938, declining more than 50%!
Or, as Bank of America summarizes it: "The Fed exit strategy completely failed as the money supply immediately contracted; Fed tightening in H1’37 was followed in H2’37 by a severe recession and a 49% collapse in the Dow Jones."
As can be seen on the above, in 1938, the stock market began to recover some. However, despite the easing stocks didn't fully regain their 1937 highs until the end of the war nearly a decade later.
Wait, the Fed hiked only to easy? That's right: in response to the second increase in reserves that March, Treasury Secretary Morgenthau was furious and argued that the Fed should offset the "panic" through open market operations to make net purchases of bonds. Also known now as QE. He ordered the Treasury into the market to purchase bonds itself.
Fed Chairman Eccles pushed back on Morgenthau urging him to balance the budget and raise tax rates to begin to retire debt.
How quaint: once upon a time the US actually had an independent Fed, not working on behalf of the banks, and pushing back on pressure to monetize debt and raise stock prices.
Those days are long gone.
So is the imminent rate hike which guarantees the ghost of 1937 is about to wake up and lead to stock losses which could make the Lehman crash seem like a dress rehearsal just the precursor to QE4, as happened nearly 80 years ago? We don't know, but neither does the manager of the world's biggest hedge fund. This is what Ray Dalio says ahead of the upcoming rate hike:
... in our opinion, inadequate attention is being paid to the risks of a downturn in which central bankers' abilities to ease are significantly impaired. Please understand that we are not sure of anything but, for the reasons explained, we do not want to have any concentrated bets, especially at this time.
We don't know either, but we do know that if the S&P is cut in half the Fed will launch not just QE4, but 5, 6 and so on, resulting in every other central bank doing the same as global currency war goes nuclear, and the race to the final currency collapse enters its final lap.
- 132012 reads
- Printer-friendly version
- Send to friend
- advertisements -





I think his last name is Con.
Is he endorsing Hillary! or Jeb?
It's my mom's birthday?
They may raise rate to implode the current system, they have never intended to repay the debt.
They are going to collapse the dollar in a WTC-7 like demolition that commences with the FedRes' raising of rates. They will then switch out the dollar with SDRs so that none of Zion's debt slaves get off the hook.
That is why the dollar is up, "exit" for the connected and Amongst, and why they have been jawboning the scapegoating of the FedRes for the resulting mess.
Of course the whole stinking edifice would have collapsed otherwise, and the FedRes does deserve its share of blame, but they are engineering something even more sinister.
When the collapse comes, don't be standing under it.
Liberty is a demand. Tyranny is submission.
Got bullets?
The debt addict needs continious fixes until it dies of an overdose.
It's QE and 0% rates until a currency crisis. The Federal cannot really stop QE and 0%, the market will have to.
September 17, 1787 Constitution Day
September 17, 1862 Battle of Antietam
16–18 September 1982
Sabra and Shatila massacreI see that you're still glued to the "All Israel, All the time" feed from Perdition TV.
Is there no subject other than hatred of the Jews that amuses or motivates you?
Why is it so crucial to you that every conversation be turned back to this one stale, tiresome rant?
I recall the observation of Winston Churchill, who once noted that a fanatic was someone who can't change his mind and won't change the subject.
Just pointing out that to a Ziopath like you
discussing Israeli war crimes is "hate"
You have to literally be insane to believe that every bottle rocket fired from Gaza justifies the murder of hundreds of children, and the denigration of all Muslims, then turn around and whine, and cry "anti-Semite" and stamp your feet when anyone dares bring up unequivocal war crimes by Israel, or 5th columnist activity by Israel's lobby.
Your hatred and Jewish Supremacism makes you stupid.
And predictable.
I tend to look at people on an individual basis, not by lumping them into boogey-man groupings.
There are individual Jews that I admire, ones that I don't admire, and ones that I have never met or heard anything about and so I reserve judgment. Just as I do for white people, black people, men, women, children, et al.
Hatred starts by arousing people AGAINST A GROUP.
You may believe that you are doing the Lord's work by continuously spreading your hatred of an entire group-- virtually every one of which you have never personally encountered-- but my suspicion is that you have been misled into carrying out the work of the Great Destroyer.
Evil itself must always march under the banner of pretended virtue. So strike up the band and move on out, corporal.
more lies and projection. Not a single post I have ever made advocated hatred of Jews as a group, or any other group.
Not one.
Of course, your skewed interpretation must be considered - I can criticize Islam or Christianity, or the American government in the harshest of terms. And I have {especially Christianity, I could go on about the violence in the Koran, but choose not to do so much here} - but if I dare criticize Judaism or Israel.. then it's "hate."
This is because you, Tarabel, are a Jewish Supremacist in your ethos. You are. Really.
You and people like you hate and hate and hate, then cry out as if your life is threatened when your team's [i.e. Israel] frequently revolting behavior is pointed out, or simply noting the great political/financialmedia power of Jews, which in part, maintains the fictions of Israeli innocence and victimhood while obfuscating the bare facts of Israel's birth in terror, racism, ethnic cleansing, and Supremacist myth. That influence has made complex what is simple, and turned the occupation into a "dispute" in which one side with nukes and tanks murders the natives armed with rocks, and claims to be 'defending' itself on land that doesn't belong to it.
Meanwhile, you have repeatedly - REPEATEDLY - spread your hatred of Muslims, and Palestinians. But you think you deserve a pass because while anti-Muslim hate, anti-Palestinian diatribes are fine, even fact-based statements regarding disproportionate Jewish/Zionist influence and how that might affect how the conflict is portrayed is "hate"
"Evil itself must always march under the banner of pretended virtue."
Indeed.
Let's be clear, what you dislike most about me is that I see through your vanity and your mock humanism to your racist, hypocritical, supremacist, and intellectually obtuse core.
Criticism of the powerful is not immoral. It is a necessary part of any truly open society.
+1000
Indeed!
+10000000000000000000000000000000000000000000000000
Wonderful job!
Since U R willing to at least respond to what appear to U to be anti-semitic remarks, perhaps you will take up the questions that so far have gone unanswered whenever and wherver I have posted them making a case that the Jews have, thru AIPAC, the JDL, and other organizations have managed to buy our government.
To wit, Wall Street Jews of Goldman Sachs, Lehman Brothers, Bear Stearns, Dick Fuld, Lord Blankfein, Jimmy Cayne, Larry Fink, (I could go on and on let me know if you want more names) the Department of the Treasury, the FED, SEC, and the CFTC---that would be Tim Geithner, Ben Bernanke, Janet Yellen, Gary Gensler, and now Tim Massad. and Jack Lew---as well as Alan Greenspan, Mary Shapiro for starters.
Now substitute for those names in no particular order: Sam Tattaglia, Vito Losquadro, Guido Corleone, Al Brazzi, Louie Rocco, Gino DeNiro, Don Pacino, Maria Napoli, Gina Lollabrigida, Paulo Ponti, Nico DeLuca, and Frank Sinatra.
Here's the question: Do you think there would not be an outcry from all quarters, particularly from the ethnic Jewish contingent of our population that there is a monopoly by Sicilian-Americans of the most important, vital and influential segment of the American government and steps taken to convene a CONgressional hearing into how and why this came about?
Is there any room in your liberality for thinking, maybe, just maybe something criminal is going on, a conspiracy at the very least???
Oh, and while you;re at it, how did the Jews manage to capture the word "Semitic" as applying ONLY to their tribes, when there are more non-Jews in the world that are Semitic descendants?
Or not.
I'll wait....
I have this sneaking suspicion you'll be waiting indefinitely, Comte... ;)
There is no "ghost", it's simple math: If you reduce the rate of debt expansion, the GDP falls almost 1:1, maybe more.
Since debt gets counted as GDP almost in entirety, backing out debt will therefore force teh GDP lower, and a recession or depression is guaranteed. Waiting longer makes it worse.
ROFL 25 BPS, I think a fairy would Phart more than that. So that's their Idea of a fix, a fairy Pharting every year for the next 20 years.
Next up for economic recoverly - fight a world war!
When the next crisis hits the banks will spend their hoarded liquidity and hyper inflation will take place.
7-8 years of printing will all come bursting out of the dam all at once.
The sooner they go out of business the better.
The sooner they go out of business the better.
The sooner the Satanic Tribe is out of buisness, the better for the world!
"How quaint: once upon a time the US actually had an independent Fed, not working on behalf of the banks, and pushing back on pressure to monetize debt and raise stock prices.
Those days are long gone."
???
what about the creature from Jekill Island?
http://safehaven.com/article/37983/were-all-greek-now-some-just-dont-know-it-yet
We're All Greek Now -- Some Just Don't Know It Yet
By: John Rubino | Mon, Jun 15, 2015
Let's see...a heavily-indebted country can't pay its bills, engages in a long series of failed attempts to manage a partial, controlled default, sees most of its capital flee to safer venues, and then, in a final act of desperation, imposes capital controls.
But it quickly realizes that it's too late. Capital controls, to the extent that they ever work, have to be imposed by surprise, while there's still some capital to control. If you wait until everyone expects them, the banks empty out in anticipation and you've locked a barn sans horses.
That's pretty much what Greece is looking at in the next couple of weeks. Though a bailout remains possible, the markets have decided that it's no longer a sure thing and capital is streaming towards the exit:
http://www.marketwatch.com/story/greece-panic-in-two-charts-as-athens-stocks-bonds-collapse-2015-06-15?dist=beforebell
Greece bonds, stocks collapsing as the market re-panics
(MarketWatch) - This time we're really panicking. That's what some markets seem to be saying this morning on the heels of failed talks over the weekend between Greece and its European creditors.
Those discussions lasted anywhere between 45 minutes to an hour, with the breakdown a painful reminder of the fact that the International Monetary Fund bailed on its own talks with Greece last week. The can has now been kicked all the way to the last-stand June 25 European Union leaders summit in Brussels, where some say Prime Minister Alexis Tsipras has all his hopes riding.
But there's also a meeting of Eurogroup finance ministers on Thursday, and many are looking anxiously for Athens to come up with new reform proposals ahead of that. June 30 remains the big line in the sand as Greece has a 1.6-billion-euro ($1.8 billion) payment to the IMF looming, after it bundled all its four June repayments into one.
The question is, what will markets do in the meantime? At least as far as Greek bonds and stocks are concerned, maybe just keep panicking. The yield on the 10-year Greek bond pushed above 12% in Europe's morning, on track for its highest close since late April. It was up 90 basis points at 12.72%, according to electronic trading platform Tradeweb. The yield on 2-year bonds surged 3.9 percentage points to 28.66%.
Let this continue for just a few more days and Greece will be, financially as well as socially, a smoking ruin. It will also be a glimpse of the future for the rest of the developed world. The fact that the US, Great Britain and Japan can create their own currency allows them a bit of flexibility that Greece doesn't have. But just a bit. As debt continues to rise faster than GDP, the gap between what's owed and what can be repaid is becoming a chasm, with consequences that are both inevitable and inescapable.
Viewed this way the difference between Greece and the rest of us is cosmetic and very temporary. Where Greece negotiates with the IMF and ECB, the big debtor nations negotiate with the financial markets via QE and other kinds of debt monetization. The goal in both cases is to placate creditors without changing the behaviors that caused the problem. In both cases it has worked, for a time.
The fact that Greece is blowing up while the printing-press-endowed countries are not just means that the stock and bond markets are easier to fool than the ECB and IMF. But no one is permanently credulous. Everyone catches on eventually, and the soaring volatility in stocks and bonds around the world imply that Greece isn't the only con artist about to be exposed.
delete
Oct 20 th
the 6 is the perfect number in judaism
My 401k will get crushed. Can't the government do anything to help me?
When it gets to a 101K go to cash and move to Texas...
http://www.globaldeflationnews.com/texas-to-repatriate-1-billion-in-gold...
They'll be ready to print like hell on a nanosecond's notice to cover any instability. Printing is all they know, while giving lip service to the demise of the middle class. With 22 trillion on the books as debt, What difference does it make now?
Gee. It's too bad that Bernank's papers he wrote only went as far as 1936. We might have avoided all this. /sarc.
Too many people have faith in fiat, therefore the banksters can continue to steal value. If people had knowledge of what fiat is, they would demand value from the banksters, and the banksters would be making car parts.
Hence the purposeful dumbing down of the American citizenry, via the DoE.
As I have written countless times before, the FED cannot raise interest rates.
This talk about when they will be raised is all theater.
If the FED raises rates, the entire Ponzi scheme will collapse and they know it.
If the stock market is allowed to go down, Keynesian economic theory will be expose to all as the fraud that it is.
The FED exists for one reason, to take the "too big to fail" banks bad debt and pitch it over on the U.S. taxpayer.
The FED is a traitorous organization.
Sad days for Amerika.
The Fed can and will raise interest rates when they decide to destroy the economy. These people are more twisted than you think.
Yawn.
so after the rate hike ww3?
I don't feel the Article is broad enough.
We have problems with Liquidity, Securitization, Usury, Monetary Leakage from our Economy, Capital moving off-shore, and Record Low Money Stock Velocity. The Multiplier Effect is crap. CapEx Investment is Crap. Globalization has put our debts and Assets in the hands of those outside of our Economy.
So The English Banking & Corporate System we have has created the super wealthy, a system of inequality & Wealth Extraction, Suppression of Small Businesses, and put our property, assets, and productive capacity in the hands of foreigners.
All of this was probably clear before NAFTA. Bankers & Lawyers didn't speak out then and they still don't speak out.
The problem with $60 Trillion in US Debt is all the Interest payments that slow down the Economy as a kind of Leakage.
Bank Private Credit to GDP for United States
2011: 55.47615 Percent (Data spans from 1961 to 2011, Bubble is clear in 2003)
http://research.stlouisfed.org/fred2/series/DDDI01USA156NWDB
http://www.bea.gov/newsreleases/international/intinv/iip_glance.htm (wow huge trend, $31 Trillion in Foreigner owned Property in USA vs $24 Trillion US owned Property in Foreign Countries)
Student Loans Owned and Securitized, Outstanding
2015:Q1: 1,355.0134 Billions of Dollars (another jump)
Quarterly, End of Period, Not Seasonally Adjusted, SLOAS,
Motor Vehicle Loans Owned and Securitized, Outstanding
2015:Q1: 972.4011 Billions of Dollars (Big surge)
Quarterly, End of Period, Not Seasonally Adjusted, MVLOAS,
http://research.stlouisfed.org/fred2/series/MVLOAS
Monetary interest paid: Households and nonprofit institutions
2013: 615.9 Billions of Dollars (+ see more)
Annual, Not Seasonally Adjusted, W291RC1A027NBEA,
http://research.stlouisfed.org/fred2/series/W291RC1A027NBEA
Interest-related imputations: Net interest, domestic: Interest paid by persons
2011: 409.9 Billions of Dollars (+ see more)
Annual, Not Seasonally Adjusted, W562RC1A027NBEA,
http://research.stlouisfed.org/fred2/series/W562RC1A027NBEA
Households and nonprofit organizations; private foreign deposits; asset, Level
2014: 47,032 Millions of Dollars (+ see more)
Annual, Not Seasonally Adjusted, HNOPFDA027N,
http://research.stlouisfed.org/fred2/series/HNOPFDA027N
Nonfinancial corporate business; private foreign deposits; asset, Level
2014: 72,093 Millions of Dollars (+ see more)
Annual, Not Seasonally Adjusted, NCBPFAA027N,
http://research.stlouisfed.org/fred2/series/NCBPFAA027N
Demand Deposits at Commercial Banks
2015-05: 1,172.2 Billions of Dollars (+ see more)
Monthly, Not Seasonally Adjusted, DEMDEPNS,
http://research.stlouisfed.org/fred2/series/DEMDEPNS
Total Checkable Deposits
2015-06-01: 1,670.4 Billions of Dollars (+ see more)
Weekly, Ending Monday, Seasonally Adjusted, TCD,
http://research.stlouisfed.org/fred2/series/TCD
Federal Debt Held by Foreign & International Investors as Percent of Gross Domestic Product, 2014:Q4: 34.75940 Percent of GDP,
http://research.stlouisfed.org/fred2/series/HBFIGDQ188S
Lots of Checkable Deposits to Target for the Next Crisis.
Ghost of 1931
"Central banks now own over $22 trillion of financial assets, a figure that exceeds the annual GDP of US & Japan"
That is quite a bubble. Chart 5 is parabolic.
1937? Shouldn't we have a 1929-1931 first?