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What Happens When Central Banks Hike Rates In The "New Normal"
Ten days ago, using Bank of America data, we summarized what it means to live in the New Normal: "In the 110 months [since the last Fed hike] global central banks have cut interest rates 697 times, central banks have bought $15 trillion of financial assets, zero [or negative] interest rates policies have been adopted in the US, Europe & Japan. And, following the Great Financial Crisis of 2008, both stocks and corporate bonds have soared to all-time highs thanks in great part to this extraordinary monetary regime."
Indeed, what has happened in the past 7 years is nothing short of the greatest attempt ro reflate asset prices (if not so much the economy - that will come when the helicopters start paradropping bags of cash) the world has ever seen, driven entirely by the central banks and China. In fact, it is now so obvious even JPM finally figured it out.
However, while the desperate attempt to monetize a quarter of global GDP in tradable assets just to boost the confidence (and wealth) of the "1%" is no longer lost on anyone, the reality is that some banks did try to tighten monetary conditions and hike rates.
This is how they fared. According to the WSJ: "In the seven years since the world’s central banks responded to the financial crisis by slashing interest rates, more than a dozen banks in the advanced world have tried to raise them again. All have been forced to retreat."
So the question then becomes: if the Fed does hike on Thursday as two-thirds of economists predict (we doubt it: Goldman said no rate hike until December, and more likely, not until 2015... in fact Goldman said "the Fed should think about easing" and what Goldman wants Goldman gets), will it be the first bank that avoids having to promptly "unhike", which is unlikely or far more realistically - how long until the Fed is forced to admit "policy defeat" and go right back to ZIRP, or perhaps even NIRP, ultimately sliding right into QE4.
Alas, by now the script of hiking just to have an alibi to ease has become so trite even Deutsche Bank last weekend had the temerity to ask "Is The Fed Preparing For A "Controlled Demolition" Of The Market"?
We'll know in 4 days.
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Lookie ma! All them squiggly lines is goin' toward negative numbers. That mean we get free money?
No pa, it means you don't get paid on your money, silly.
Funny, "(market)" (gots to wrap that thing) backwards is "tek-ram". Mmm-hmm Uh-huh.
Go ahead. I dare you. I double dare you to raise interest rates more than a symbolic 5-10 bips.
Yellen: (raises skirt puts sizable balls on table). The interest rate is now FIVE PERCENT!!! (pandemonium, shots fired, several "journalists" have heart failure, stunned public remains stunned...)
(pandemonium, shots fired, several "journalists" have heart failure, stunned public remains stunned...)
And that's just from the sight of her balls. After that everyone forgot about the 5 percent interest rate.
Spending 25% of the federal budget (one TRILLION dollars) per year for interest on the national debt will never be allowed. THerefore, rates will never go up to a "normal" range (4-5%).
Rates will never go up...ever. Not in this monetary paradigm.
What bulls & bears need to be aware of is if you play, you will pay.
Since we're in bizzaro world I am counting on them raising rates .25% and nothing bad happening. Well, besides gold and silver getting crushed.
Doesn't the Fed remit all their profits back to the Treasury (less their 6% guaranteed dividend)? <Serious questions, not trolling>
So I guess this means that I'd better buy the dip and not miss the next up-leg of stawlks.
Because they're gonna ease before they tighten significantly.
"(raises skirt puts sizable balls on table)"
Unknown fact: Yellen is Scottish, and is wearing a Kilt in a traditional manner (commando)
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To: Abuse@ZeroHedge.com
Subject: Please delete the spammer account "Big_Hitman"
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http://www.zerohedge.com/search/user_comments?username=Big_Hitman
QE sure seemed to do the trick if you're rich as fuck. Why stop now?
You can always sell to the Muppets at the top and divest profits into hard assets. Pull the plug. Rinse/Repeat. We fall for it everytime.
The problem is that they are running out of muppets.
"Out of Muppets? Bring that asshole Cramer out here!"
Qe4 Inbound.
C'mon Janet, 4.5%, you can do it!
This economy is a locomotive! So much employment! No inflation! Do it!
No-one is hiking rates.
Its all just a bluff from the Fed, they are trying to deflate markets a bit so when the bubble pops it was a gradual drop not a big drop.... they probably want to limit the stock declines to 10% a month over the next 9 months or something.
They are trying to deflate the bubble without hiking by using headlines to make people more risk averse they know they cant exit or the entire shebang comes crashing down like a house of cards.
False statistics that say everything is good is not going to make the Fed hike... the Fed knows the official metrics are complete bullshit and that half the country is unemployed and in debt up their eye-balls, this is a zero sum game, and its almost game-over.
If they don't hike markets will be setting new highs in days if not hours.
QE4 is a given at this point, Time for round 4 of that wonderful FED Heroin. Hopefully the overdose doesn't kill us.
Like a Heroin addict that tried to stop then has a relapse.
The act of trying to stop and flipping back to old habits provides too much of a shock and kills the addict.
Therefore we should just keep drugging on .....
People in chronic pain chronically take pain relievers.
Heroin. QE. Makes no difference.
Until the pain is cured the pain relievers will flow.
Meh, a heroin overdoes sounds better than being eaten alive by roaming marauders while clutching my last can of beans.
I'll huff and I'll puff and I'll blooooooow your house down!!!
The Little Stawk Piggies are laghin atcha ya know ;-)
Only hiking this fall and winter will be to the quarterback standing over the center. Hike Hike Hike.
"Controlled Demolition" ??
If you own bonds and the Federal Reserve "gradually" raises interest rates, what do you think will happen to the value of your bonds?
They will "gradually" lose value, a lot.
So what do you think that bond holders will do?
They will FU.KING SELL THEIR BONDS!!
Then the Federal Reserve will come to the rescue and buy all comers.
And then we'll have a FU.KING HYPERINFLATION!!
The CB can't afford a rate hike. It won't happen because the logic that backs it is not there. Sure, they fudged the books, but it's one thing to fudge books and another to shoot yourself in the foot on purpose and claim otherwise when the whole world is watching intently for the slight of hand.
Janet Yellow will bail on the plan last minute just for FUN.
How much would a .05 raise cost and why would they just not print to cover? A raise gives the illusion of a return to normalcy no matter how small the raise is.
This sitting and waiting around for the gods of banking to jackoff on a gutted goat and read the entrails is getting old. The whole damn world waiting on these clowns to find out if they will let the markets ride for a while longer is beyond bullshit.
The BIS 'house-view' is that the global authorities may have put off the day of reckoning by holding interest rates below their 'natural' or Wicksellian rate with each successive cycle but this merely stores up greater imbalances, drawing down prosperity from the future and stretching the elastic further until it snaps back. At some point, you have to take your bitter medicine.
The Fed Dollar is jewish Money, the Fed is a jewish Bank. The jews can do what ever they want......... raise intrest rates, drop the Dollar, etc., etc..
the chief of the Fed is allways a jew, because it is their system.
They are fronting for the QE. The Queen of England.
http://www.zerohedge.com/news/2015-09-07/bed-despotic-house-saud#comment...
Okay...enough of this mumbo jumbo..let's cut to the chase.. QE1,2,3,and ZIRP have not worked.. American economy stalled, consumer spending is stalling..what is the problem?...not enough spending in the right places..why not...poor and middle class do not have enough money to make this happen..ok...who has the money..the rich, super rich...their net worth has increased very well...they are not spending..let me repeat..the rich and super rich are guilty of not increasing spending to make this economy grow...how to solve this...gov't imposes a one time 25% tax on the rich,super rich net worth, redistributes this to the poorest and working their way up the income chain...these people will spend and kick start the economy...let's go from PhD's who say...(Push Higher Debt) to PhD's who say (Please Help Distribute) rich peoples money to the working class...
I see your problem:
one time
It is never one time. It is then theft to infinity. Communism heavy. I have had more than enough of communism lite. Thank you very much.
Cut tax already, they raise tax with QE and wounder why people spend less ( cut tax and if economy slows do QE with lower tax / increased benifits ( pensions(..
So QE goes to working people / pensioners .
what is suppose to happen is economy has credit event // slow Govt implants policies ( cut tax / debt write off like savings / loans ) ect that reduce debt / leverage and stimulate economy .
And if they work equities rally on improved earnings ect.
What their doing is buying bonds / stocks to manipulate the price, which makes them feel like they did well ( Abe especially).
but their too scared to actually make policy change because the risk it they would be wrong .
So their addicted to manipulating the market , and when ever they stop they get scared .
I've who says a 20-30% drop in equity / property prices with / 1-2% higher interest rate would not be better for future investors / pensioners.
Well let's just practice some more insanity. Who will notice? Football is on!
The FED will not raise rates without further harming the US.
1. Raising rates will increase the strength of the dollar, hurting further the economy.
2. Raising rates will increase costs of borrowing for the government, increasing the deficit, further hurting the economy.
3. Raising rates will drop equity prices, hurting those that fund politicians, and through them, hurting the candidates.
0. Raising rates will FORCE businesses to get more efficient. After a fair amount of pain.
4. Raising rates will drop bond prices, hurting bond funds, pension funds and bond holders.
With respect to people's actual physical needs and desires the market is so distorted that a "Controlled Demolition" is impossible.
If the bankers can produce a "Good Bank" of sufficient size to contain the "Good" assets, then they can move "Good" assets there, and then demolish the Western World as it was, which, stripped of the "Good" assets will be a trash heap waiting for default.
Just one problem.
They've tried twice in the last 40 years to make a "Good" bank...but all their injections of "Good" assets simply blew bubbles that subsequently exploded in Japan, and now in China.
This indicates that the market has been so distorted by "Free Stuff For Some", that economic structures are so married to Government and Central Banking distortions of demand through wealth re-distribution", and so divorced from real conditions, that no one knows which assets are "Good".
So... Without a safe harbor to hide their assets the elites are in a bind. They don't want to do a "Controlled Demolition" ...because it isn't really possible to control such a thing, only to avoid it by influencing where the Demolition will be and will not be. They've failed in that task.
Nevertheless, there will be demolition, planned or not, as all the unnatural and counter-productive socially and politically engineered redistribution schemes (more accurately theft, fraud, and slavery) create fundamentally unstable social and economic structures.
And a word about that...
The lovers of force and fraud don't seem to understand that honesty is practical in the long run. It is possible to be more efficient with the aid of technology. But it is not possible to get something for nothing. Something for nothing is physically impossible.
Hence for one person to get something for nothing, another must get nothing for something.
And when too many people get nothing for something...the "Something" disappears.
Everyone who clammored for government subsidies, payouts, and tried to be the recipient of stolen wealth needs to remember that as their world collapses around them. Whether one anthropomorphizes deity or not, the universe has rules...and they will get their just deserts.
Keep it criminal.