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Did China's Devaluation Crush Yellen's Rate Hike Strategy

Tyler Durden's picture




 

By Paul Brodksy of Macro Allocation, Inc.

The Yuan And The Fed

The overnight devaluation of the Yuan by the People’s Bank of China may not signal a change in the Fed actions this fall. As we suggested here, the Fed has quietly shifted its interest rate policy from one which primarily seeks to promote its domestic dual economic mandate (stable U.S. inflation and maximum employment) to one which primarily seeks to ensure the unilateral hegemony of the US Dollar. We concluded the Fed would raise rates this fall. In this regard, the Chinese devaluation last night may be considered a victory. For financial asset investors in the U.S. and around the world, the immediate question becomes whether the Fed will now relax its guidance and seeming intention to raise its Fed Funds target. We think the Fed will still raise rates.

The issue is dominance. While Chinese devaluation may be a victory, U.S. economic and foreign policies including global banking, trade, resource allocation and soft power rely on merciless execution of Dollar hegemony, especially at a time when the global economy appears to be rolling over (see here: https://macro-allocation.com/around-the-world-august-5-2015/). We believe the Fed will be persuaded to consider the global picture and the beneficial second-order implications of a dominant currency on its formal domestic mandate, that being: in a global economy with declining output growth and zero-bound sovereign interest rates, an untouchable U.S. dollar would attract global wealth. U.S. bank deposits would increase regardless of deposit rates, U.S. Treasuries would be bid regardless of interest rates, and U.S. equity markets would see relative inflows regardless of potential economic slowing.

If we are right and the Fed hikes in September or December, it would then seem natural for it to signal a wait-and-see posture. In a contracting global economy, the competition among nations for capital can no longer be determined by relative growth, but, rather, by relative safety. This is serious stuff, and we do not expect U.S. policy makers to take America’s foot off the throat of economies posing threats to the established order in such an environment.

 

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Tue, 08/11/2015 - 12:56 | 6414331 ted41776
ted41776's picture

nirp here we come

Tue, 08/11/2015 - 12:57 | 6414333 Bank_sters
Bank_sters's picture

I remember the good ole days in 2011 when the 'experts' talked of a 1st or 2nd  quarter 2012 hike.  Nope, give em all credit cards at 22 percent interest, cars they can't afford, student loans, home loans- shit, give em new sub prime real estate loans and hike rents, all the while wages fall in a shitty job market.   

They'll fuck savers to the moon.  Of course, they know they'll need the 10 trillion that have been lost through zirp for their retirement.   Unfortunately, most of those poor fuckers will gladly sell the rest of their assets for pennies on a dollar.   

 

The next tanks in the streets moment is here.    This time they are better prepared, are you?

This is all I got today...
Tue, 08/11/2015 - 13:09 | 6414417 knukles
knukles's picture

Nah, it's the weather.

Tue, 08/11/2015 - 13:11 | 6414424 SWRichmond
SWRichmond's picture
Did China's Devaluation Crush Yellen's Rate Hike Strategy

Certainly not on purpose...

Tue, 08/11/2015 - 13:13 | 6414440 Winston Churchill
Winston Churchill's picture

You misspelt porpoise.

Tue, 08/11/2015 - 13:18 | 6414470 Consuelo
Consuelo's picture

That would be: Poypuss.

 

 

Tue, 08/11/2015 - 13:11 | 6414431 remain calm
remain calm's picture

She is going to tell us she is going to do it and then not. It is the same game I tell my sweetie. Listen I promise you I will lift the lid and then I don't and she sits in it again. She is never going to learn, hehe.

Tue, 08/11/2015 - 15:06 | 6415088 Pool Shark
Pool Shark's picture

 

 

Just like the game with the sign in the pub window saying:

"Free Beer tomorrow"

Problem is; it's never 'tomorrow'...

 

[The Fed ain't gonna raise rates in September...]

 

Tue, 08/11/2015 - 13:12 | 6414437 SWRichmond
SWRichmond's picture

Do they still bother chaning law, when they just cimply ignore it overtly anyway?

Tue, 08/11/2015 - 21:33 | 6416594 conscious being
conscious being's picture

Boys, boys, boys its simple. More QE. Check the other OP on it. Its going now like dominoes falling.

Tue, 08/11/2015 - 13:11 | 6414432 SWRichmond
SWRichmond's picture

The next tanks in the streets moment is here.    This time they are better prepared, are you?

:)

Tue, 08/11/2015 - 14:20 | 6414454 KnuckleDragger-X
KnuckleDragger-X's picture

This is not the beginning of the end, but the end of the beginning. It will get a lot worse from here since the only thing the FED can do will be destructive. Then add in all our homemade barbarians screaming "no justice, no peace' we will get to experience the worst humanity has to offer in the next few years.....

Tue, 08/11/2015 - 13:03 | 6414377 JRobby
JRobby's picture

Already there

Tue, 08/11/2015 - 13:12 | 6414415 remain calm
remain calm's picture

she never was

Tue, 08/11/2015 - 13:08 | 6414410 Hitlery_4_Dictator
Hitlery_4_Dictator's picture

We demand you raise rates you lispy east coasty ivy league piece of trash...we are sick of the charade and we won't take it anymore....if you don't raise rates the dollar IS toast...save the savers! 

Tue, 08/11/2015 - 13:18 | 6414469 hxc
hxc's picture

You forget that credit contraction always marks the beginning of the end for an abct-styled "boom."

 

I'm still rooting for hyperinflation. All they gotta do is print enough to make me rich off my PM's.

 

 

 

Tue, 08/11/2015 - 14:40 | 6414962 TheEndIsNear
TheEndIsNear's picture

PM's preserve wealth, they don't make you rich except by comparison to the poor dunces who's paper currency becomes worth nothing at all. For example, you are already rich in terms of Zimbabwe dollars, but what good does that do you?

 

Tue, 08/11/2015 - 21:36 | 6416610 conscious being
conscious being's picture

Are you here to hold up the charade that Mr. Yellen really might raise rates? Like Cleavon Little in Blazing Saddles?

Tue, 08/11/2015 - 12:59 | 6414347 mayhem_korner
mayhem_korner's picture

 

 

Hinting that rates will be raised, but never actually doing so is Mr. Yellen's strategy.

Tue, 08/11/2015 - 13:41 | 6414590 NotApplicable
NotApplicable's picture

And it's all they've ever had. Well, that and these people from Macro Allocation who are the Fed's water boys.

Tue, 08/11/2015 - 21:40 | 6416628 conscious being
conscious being's picture

Well that and moar QE. First there has to be some hint of distress to justify the retreat.

Tue, 08/11/2015 - 13:00 | 6414353 Felix da Kat
Felix da Kat's picture

China just threw a turd into Yellin's punch bowl.

Tue, 08/11/2015 - 13:02 | 6414368 JC-BI
Tue, 08/11/2015 - 13:12 | 6414435 Consuelo
Consuelo's picture

 

When they force her mouth open - like a scene from Planet of the Apes, and force some shit-stained $UST down her gullet, you'll know it's on.

Tue, 08/11/2015 - 14:41 | 6414971 TheEndIsNear
TheEndIsNear's picture

Payback for refusal to include the Yuan in the SDR this year.

 

Tue, 08/11/2015 - 13:00 | 6414356 Don Sunset
Don Sunset's picture

The FED will raise rates as rent increases alone are out of control and devastaing the economy.  The USG will initiate tariffs on certain imports from China and other countries (which will quickly be expanded) that are devaluing their currencies.  This was inevitable and is too late.

Tue, 08/11/2015 - 21:41 | 6416631 conscious being
conscious being's picture

Dream a little dream for me.

Tue, 08/11/2015 - 13:01 | 6414362 risk-reward
risk-reward's picture

Silver and Gold you can hold........The other stuff is just fluff.

Tue, 08/11/2015 - 13:01 | 6414365 JRobby
JRobby's picture

"In a contracting global economy, the competition among nations for capital can no longer be determined by relative growth, but, rather, by relative safety"

The most attractive shit in the big shit show.

That has been the game for some time now. Kind of like an MVP trophy for the best player on a last place team.

Tue, 08/11/2015 - 13:02 | 6414367 silverserfer
silverserfer's picture

Go ahead raise rates bitch! You spineless mole! Do it you lamprey mouthed succubus!

Tue, 08/11/2015 - 13:03 | 6414381 sandhillexit
sandhillexit's picture

Fischer told us yesterday that he won't hike. Because international banking is all about value-extraction, and if you get it wrong you can kill the host.  China just helped his cause (which is placating the European pension funds and the private equity pools).  

Tue, 08/11/2015 - 13:12 | 6414436 Apocalicious
Apocalicious's picture

And Locker just said he firmly supports a rate hike in September. This isn't about what they should do, but they will likely do. 

Tue, 08/11/2015 - 13:53 | 6414654 sandhillexit
sandhillexit's picture

L is nobody.  Fischer is Fischer.  He is an international brand.  Nobody in the US knows who he is, but everybody in Europe does.  He's a triple or quadruple citizen...South Africa, Israel, UK & US.  He's like Soros and Kissinger.  He has no country, he just shows up, and his job is to keep the international folks happy.  He's America's "minder."  Because actual Americans can't really be trusted to run our own Central Bank.  

Tue, 08/11/2015 - 21:48 | 6416661 conscious being
conscious being's picture

"And Locker just said ..." Who cares? Locker who? Locker, God of Macro Economic Outcomes. What a CV resume he must have.

Who cares?

Tue, 08/11/2015 - 13:07 | 6414406 clade7
clade7's picture

That rice bowl of a haircut didnt get all dressed up for nothing I guess..the signs were obvious...aside from that back alley beijing hairdoo, the chopstic chicklet teeth and that annoying 'ping pang' droning voice were dead tip offs...

wheres that boring Galapagos Tortiose Greenspan?  Eating a head of wilted lettuce at a zoo someplace?  Or Andrea Mitchell?

Tue, 08/11/2015 - 13:07 | 6414407 Youri Carma
Youri Carma's picture

"The competition among nations for capital can no longer be determined by relative growth, but, rather, by relative safety."

Insightful point.

Tue, 08/11/2015 - 13:13 | 6414443 LawsofPhysics
LawsofPhysics's picture

Yes, but how does one price risk in the absence of true price discovery and ZIRP?

There is no spoon, period.

Tue, 08/11/2015 - 13:19 | 6414477 Youri Carma
Youri Carma's picture

You're completely right about that but it doesn't seem to bother the 'investors' who don't know what to do otherwise and go with the flow.

Tue, 08/11/2015 - 13:24 | 6414516 Debeachesand Je...
Debeachesand Jerseyshores's picture

Yellen will raise interest rates in September just to keep and press harder on the throats of other world currencies,just as the article stated...

 

 

Tue, 08/11/2015 - 21:52 | 6416682 conscious being
conscious being's picture

Btw, all these handles here, like you, claiming any day now Mr. Yellen is gonna bring the hammer down ... I've never seen any of you before. Tell the home office to work on a more credible way to dispatch the team.

Tue, 08/11/2015 - 13:09 | 6414414 madcows
madcows's picture

So you can "earn" 2% on a bond, or you can "earn"4% by paying down your mortgage.  Instead of lending money to a corrupt government, why don't you take the opportunity to screw a banker instead?

Tue, 08/11/2015 - 13:20 | 6414489 jakesdad
jakesdad's picture

did that back in 90s during 1st bubble (90s, not mid-00s)...  at the risk of showing my age (45) yes, there actually was a time when people w/good credit were paying 8 3/8 on a 30 yr fixed (no, didn't do any gimmick financing either).  all our friends were telling us how crazy we were not to be putting every penny in the market.  I would never say "told you so" but quite a few of them have since told me they wish they'd have followed our lead.

 

debt-free since o-3!

Tue, 08/11/2015 - 14:28 | 6414901 techpreist
techpreist's picture

Very well played, sir! I'm a bit younger and paid off that last of my debts this year, and I tell you, it's great. The next step is getting rent free; once you owe nothing just to survive, you have some real freedom.

Tue, 08/11/2015 - 13:09 | 6414418 Consuelo
Consuelo's picture

 

"This is serious stuff, and we do not expect U.S. policy makers to take America’s foot off the throat of economies posing threats to the established order in such an environment."

Precisely.   And don't think for one moment that those feeling that Wolfowitz Vibram sole on their neck, don't have plans of their own to eventually deal with it.    When a U.S. carrier battle group (or two) has set sail for the South China sea under the latest false pretense, you'll know it's on for real.

Tue, 08/11/2015 - 13:11 | 6414425 knukles
knukles's picture

Why not just tighten tomorrow and get it over with?
They haven't a clue what's going on anyhow, so who cares anymore, really?

Tue, 08/11/2015 - 13:11 | 6414428 the grateful un...
the grateful unemployed's picture

the strong dollar effect only lasts as long as the IMF SDR program anyway. the first rate hike is symbolic only, can she afford that? it helps them monetize US debt, so why not? the initial surge in government spending will overshadow the costs of servicing that debt.  on the other hand that kills private investment, who do they care about that, no they do not

Tue, 08/11/2015 - 13:16 | 6414456 Consuelo
Consuelo's picture

 

And the U.S.-owned IMF just gave a bitch-slap to China with regard SDR inclusion...   I guess we'll know fairly certain how insulted they were when ZH gives the next update on another dump of $UST.

 

 

Tue, 08/11/2015 - 13:18 | 6414473 nakki
nakki's picture

We conclude that Paul is a dolt. They were going to raise rates 3 years ago and according to most of the fed officials we should be at 2-2.5% fed funds rate by now (2012 fed dot plot). If they raise it will be a superficial .125 % so they can say see we raised rates. They won't even do that, we have an election coming up!! Can't raise rates because they can't be political

As I'VE said before I read and have seen better insight from people that post on ZH. The people that actually get paid for their point of view either are lazy or don't know jack shit, or are just liars.

Yes blame it on China for their QE, they're the currency manipulators. Not the US, not Japan or the ECB. As bank sters said above the interest lost to savers could have gone a long way to babyboomers and their retirements, but who needs savers when banks can get their money for free.

Tue, 08/11/2015 - 15:31 | 6415219 GRDguy
GRDguy's picture

Absolutely. They have to lie to you in order to steal from you. (paper financial transactions.)

Tue, 08/11/2015 - 13:21 | 6414490 katchum
katchum's picture

Bernanke is the boss, Yellen is a wuss.

Tue, 08/11/2015 - 13:22 | 6414502 orez65
orez65's picture

Raising interest rates will burst the bond bubble.

Ms Yellen let me introduce you to hyperinflation!

Tue, 08/11/2015 - 13:26 | 6414524 Grandad Grumps
Grandad Grumps's picture

Do the banks and US government really think that it is bad if they can trade paper (or electronic bits) for real things, such as raw materials, labor, food and electronic equipment?

I am thinking that it would be worse if the US could not trade paper for real things.

... and all of the rest of the world is busy trying to be the most attractive supplier for things that they cannot themselves afford to use.

Tue, 08/11/2015 - 13:36 | 6414564 post turtle saver
post turtle saver's picture

Yes... hopefully, yes

Tue, 08/11/2015 - 13:43 | 6414584 Latitude25
Latitude25's picture

In other words the only "product" of the mighty US industrial machine will be the dollar.  OK Janet.  Full speed ahead.  It's a war with gold to the death.

Tue, 08/11/2015 - 13:44 | 6414589 Sorry_about_Dresden
Sorry_about_Dresden's picture

I saved a significant portion of my savings in a Yuan denominated savings account in 2010. This move really surprised me. 

Am I wrong to think that China will dominate the world economy and the petrodollar is fatally flawed?

The market is taking a beating.

 

 

Tue, 08/11/2015 - 13:50 | 6414638 Fukushima Fricassee
Fukushima Fricassee's picture

Do not speak of that ignorant bitches name.

 

Insert Yellen, Clinton or Megan Kelly.

Tue, 08/11/2015 - 13:51 | 6414642 gcjohns1971
gcjohns1971's picture

Did China ruin 'The Hike'?

In a word - No.

It was never more than 'Open Mouth Operations'.

 

Credit has grown so much that too few people can take on more debt.  While businesses and people can service no more debt, the only currency expansion is Fed money printing.  

Raising rates will only serve to contract the already-too-little number of people borrowing.  

 

And the basic structure of the Fiat Federal Reserve Note requires continuous monetary expansion or there will not be enough money in the present to service the debts of the past - both government and private.

So Yellen can't really raise rates.   If she does you'll get a deflationary currency collapse.

And since Yellen works for the Banksters, and Banksters get hurt more in a deflationary collapse than an inflationary one, you'll get a resumption of QE, whether or not they call it that, whether or not there is an announcement for it, whether or not the method is understood.

The problem is that there is too little principal value to service the accumulated interest payments in this monetary system, while simultaneously all monetary expansion requires a matching increase in debt, plus an interest percentage (currently ZIRP).

ZIRP is (temporarily) keeping the monetary system from collapsing, but is powerless to correct the distorted economy which has been twisted to service the inflationary-cash recieving cronies while starving real businesses.

So...when the system can't tread water, they have to print.  When their printing creates more debt than equity (passed in the 1990's) then the die is cast...it was an inflection point...You'll get an inflationary currency collapse - because inlation is better for banksters.  

All the interest rate and QE ploys between that inflection point and now only affect the timing.

And from that inflection point (and in fact since they knew the inflection point was coming in the 1970's)  the Banksters have been swarming to and fro looking for an economy that can hold enough capacity to be a 'Good Bank' so that they can move all their assets there, and let the old 'Bad Bank' collapse.

First Japan, then the EU, China, and EM were their prospective 'Good Banks'.    Instead, all their prospects have turned out to be popping-balloons.

See?  You have to have a MORAL vessel, with respect for the rule of Law, and LONGSTANDING CONSERVATIVE FISCAL TRADITIONS, in order to make a 'Good Bank'...or the necessary asset transfers will simply support fraudulent schemes of one sort or another in a fractional-reserve basis.

That is why all their prospects have been popping bubbles.

Couldn't have happened to a more deserving crowd...

Tue, 08/11/2015 - 14:00 | 6414694 orez65
orez65's picture

"... fraudulent schemes of one sort or another in a fractional-reserve basis."

You are correct but I don't think that 1 in 100 adults in the United States understand what "fractional reserve banking" is.

I keep trying to figure out simpler and simpler ways to explain it but all I get is "deer in the headlights" looks.


Tue, 08/11/2015 - 14:03 | 6414715 Latitude25
Latitude25's picture

"You have to have a MORAL vessel".  Yes we do and the banksters hate it.  GOLD

Tue, 08/11/2015 - 13:57 | 6414677 luckylongshot
luckylongshot's picture

Why publish this rubbish Tyler? The only time the FEd will raise rates is when it wants to destroy the US economy. While this is not out of the question- as the FEd is not owned by the US public, it is still hard to imagine.

Tue, 08/11/2015 - 14:16 | 6414791 Bioscale
Bioscale's picture

Rates and Greece. Infinite scam and lies.

Tue, 08/11/2015 - 14:20 | 6414833 alfred b.
alfred b.'s picture

 

    It's a lot like her saying "we have 8K tons of gold" but never letting anyone check it....that one's been working with many for a long time!

    This United States of Bribery has given up on 'morals' and seeks only to improve falsified 'morale' of its sheeple!

 

Tue, 08/11/2015 - 14:37 | 6414937 honestann
honestann's picture

The fed NEVER had any intention to raise rates.  They only wanted to PRETEND they were going to raise rates as part of the propaganda to convince the sheeple the economy was getting better for everyone... except them of course.

The fed knows that when everyone realizes EVERY major government has gotten themselves so deeply in debt that they CANNOT handle above-zero interest rates, the collapse arrives.

And so it will anyway.

Soon too.

Tue, 08/11/2015 - 14:48 | 6415007 I Write Code
I Write Code's picture

IF the decision is made on quantitative measures, as they keep telling us, then yes it crushes the plan to raise rates because Yellen is a wuss.

OTOH it's probably already priced in so she might as well go ahead with it, and of course SHOULD go ahead with it for 99 other reasons.  Likely just a tenth or an eighth of a point and laughable on its face, but it's the first step of a ten year program to get rates back to normal.  Get on with it Janet, damn the torpedoes.

Tue, 08/11/2015 - 15:44 | 6415270 RopeADope
RopeADope's picture

Yellen never had a rate hike strategy. It is just jawboning to increase rates on the consumer class while keeping official rates low on the producer class. Another example of how Keynesian economics requires enormous welfare subsidies via the income tax or interest rate structures within society to not blow up on itself.

Tue, 08/11/2015 - 20:44 | 6416396 squid
squid's picture

IF the silly cow had already raised rates, the PBOC would not have done this.

She has not pulled her finger out so here we are.

 

And what our silly cow things she's going to be able to do when we all finally admit the USA is in recession again is beyond me. Rates have been at zero for six years so she can't lower them.

 

Better get the Bernak to the bull pen. He's the expert for all the FED has left.

 

What a mess.

 

Squid

Tue, 08/11/2015 - 21:28 | 6416561 conscious being
conscious being's picture

Yes TD, it did. For a long time, China was the wealthiest, etc. place in the world. They're on their comeback. The Mandate of Heaven.

Tue, 08/11/2015 - 21:29 | 6416565 Macon Richardson
Macon Richardson's picture

"Did China's Devaluation Crush Yellin's Rate Hike Strategy?" the headline asks. What rate hike strategy?

Wed, 08/12/2015 - 01:55 | 6417283 rex-lacrymarum
rex-lacrymarum's picture

The Fed has no "strategy", period. It never had anything but seat-of-the-pants, ad-hoc, reactive policy. It cannot be otherwise: central planning is literally impossible, and central banks are merely a special case illustrating the socialist calculation problem. 

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