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In This Globally Interconnected Economy, "Nobody Wins" If Fed Hikes Rates
Submitted by Charles Hugh-Smith via OfTwoMinds blog,
The USD strengthening since last July is the core driver of the global recession.
The parlor game of the moment is laying odds on the Federal Reserve's decision to raise rates, leave rates unchanged, or (gasp!) hint at future stimulus. There are certainly a multitude of inputs to the Fed's decision, and a variety of potential consequences, but only one really matters: the effect on foreign exchange/currency markets.
It's not that difficult to understand the one dynamic that matters. If the Fed raise yields/interest rates in the U.S., that makes the U.S. currency, i.e. the U.S. dollar (USD), more attractive.
Higher yield = more attractive, especially when coupled with the liquid market for U.S. Treasuries and the relative safety of the dollar vis a vis other currencies issued by falling-into-recession nations and trading blocs.
What happens when the Fed makes the USD more attractive to global capital? Capital flows even faster out of emerging economies and China. The tidal flow of capital out of emerging markets and China threatens to surge into a veritable tsunami should the Fed raise rates.
What happens as capital flees emerging markets and China? Bad things. Lots of bad things.
Number 1 Bad Thing: The currencies of emerging market nations weaken as capital flees, forcing the issuing nations to defend their currencies (a losing proposition, as we saw in the Asian Contagion of 1997-1998) or devalue their currencies.
We caught a whiff of what happens when China is forced to devalue the RMB/yuan--global markets went into a free-fall.
Number 2 Bad Thing: Investors sell emerging market stocks and bonds to escape the downside of currency devaluation. This crushes the stock and bond markets in emerging economies--and China, however you wish to categorize it.
Number 3 Bad Thing: Investment in emerging market economies dries up.
Global growth largely depends on the rapid expansion of emerging economies, which in good times can grow 5% to 8% annually, while developed economies register 1% or 2% growth at best.
Once capital flees, investment in fast-growing economies dries up and as a result, so does growth. The inevitable result is a global slowdown, a.k.a. global recession.
Number 4 Bad Thing: As the dollar strengthens versus emerging market currencies, a self-reinforcing feedback loop is established: the more the USD rises, the more capital flees emerging markets, pushing those currencies down, which then forces more liquidation of stocks, bonds real estate, etc. denominated in those depreciating currencies.
The USD strengthening since last July is the core driver of the global recession. Is the Fed insane enough to deepen the global recession by raising rates and pushing the U.S. dollar even higher? Who wins if the USD strengthens due to the Fed raising rates?
In a globally interconnected economy, nobody wins.
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Sure somebody wins, the bankers. They always win.
I will bet gold and silver wins when someone calls their bluff.
In fact, its already winning in real physical demand.
As stated before, the only way to win is to not play.
This article is nonsense.
All of Charles' articles are nonsense. Read the title and that was enough garbage for me. Debtors will lose and savers will win. Everyone will not lose. Even if the whole system falls apart there will be winners, but maybe Charles won't be one of them.
Or nuke em all first!
https://www.youtube.com/watch?v=snTaSJk0n_Y
It's all interconnected.
The FED cannot control things that are 'out there'.
The tsunami is coming. The FED cannot stop it.
Best of luck.
Yellen as Major Kong.......
Don't bet against th ehouse on this one. Who wins? The holders of debt payable in appreciating dollars.
Minor correction:
The holders of serviceable debt payable in appreciating dollars.
DB just laid off 1/4 of their workforce. Are we absolutely, positively, no-foolin-around certain they always win?
On a long enough timeline I'm pretty sure they don't win.
Well technically it was the IT guys who got the hatchet, but maybe I should be a little more specific, the financiers always win. Everybody else gets shit on after they've served their purpose.
Wealth isn't lost, it's transferred.
1oz Silver American Eagle €12 @ EurGold
https://www.eurgold.eu/silver/silver-coins/american-eagle-1oz-silver-coi...
Savers win, actually. They get paid more for their surplus capital.
My currency strength is not my problem, deal with it...
Not just savers - all these pension plans are getting blown to hell by the real negative interest rates (which I'll call R-NIRP) as well.
And R-NIRP outright destroys real capital accumulation, the very kind of capital needed to invest in the next generation of businesses and business expansion.
Not to mention that the capital that would find the US "more attractive" at even a 1% interest rate is capital that fled the country because of R-NIRP. To consider capital fleeing the US as a positive is nonsensical and destructive.
What I'd like to know is how big the rally is going to be when the FED announced they've kicked the can again?
at what point does the Fed can-kicking result in loss of confidence in both the Fed and the "recovery" narrative? I see two outcomes: 1) they raise, SHTF as outlined above; or 2) they delay, and SHTF as confidence finally wanes... or 3) more QE, which results in a brief pop that rapidly crashes alongside the USD... something about a corner, and paint...
What am I missing?
Ya know CHS, I am willing to let a real market sort it out. Banker management of the world economies has not led to a utopia. We here in the US benefit from being able to purchase more goods and services that we do not need and people of the world get dragged off the farms and rural communities and into the factories and mines.
Is that really better?
Agreed. Who has won with ZIRP and QE? Certainly not 95% of the regular individuals and families.
What? More ZIRP and QE and mindless debt while punishing savers is a good thing? C'mon Charles!
Tear the whole fucking Ponzi down! It's all a big LIE! Tear it down!
So keep rates at zero forever because that has been working so well -
Guys and Gals...
We're coming to the magic moment when interconnectivity has maxed itself out as we have been witnessing by degree these past 8 years then it's every bank for "themselves"
Now it gets interesting!!!
Reorganization Time.
Has to be done every 10 years whether they want to or not.
Cut the Fat.
This garbage sounds like Liesman whining while he gives Pisani a foot massage. Let me guess - the solution is more free money for the Bankster Cabal?
It's an old joke in economist circles that the answer to every monetary policy question is "increase the money supply."
"If the Fed raise yields/interest rates in the U.S., that makes the U.S. currency, i.e. the U.S. dollar (USD), more attractive."
But, but... de-dollarization, Chuck. What about de-dollarization?
Ya know, the more I think about it, the more I think we just might have already found the "single world currency" that will rule us all. It's called the Dollar.
Except for the fact that 25 basis points borders on completely irrelevant and that is all they are talking about doing. 25 bp every once in awhile when they think the world can take it without anything bad happening. It's going to take years and years at the rate they contemplate to normalize, if ever, given global considerations. It actually should have heppened years ago, but by waiting so insanely long, they have painted themselves into a corner.
25 bp is pretty much irrelevant. But whats not irrelevant is the direction. Many people in finance today have only worked in conditions with rates lowering, not raising.
So im sure they have planned on what to do in that environment but its all theory so lets see how they handle it in practice.
What BS... Real money is not fleeing EMs. The only money "fleeing" is carry trade money which is by its nature is speculative. While I am absolutely sure that Wall Street would also love the FED to give them more QE and more ZIRP. In their minds, everyone would win, except for the average man, but in their minds, who cares about him/her anyway.
In short, the Fed should stop caring about what happens to the "markets" (aka speculators) and do what it knows is best over the longterm. Having rates at 0% for almost a decade is destroying the fundamental (businesses who actually do things) economy and allowing Wall Street to continue its rampage of raping and pillage the fundamental economy with the free money the central banks are giving them.
Well stated. We followed the Japanese into ZIRP and QE because it has worked out so well for them over the past 20 years. Oh, wait...
Correct. In fact I see real capital and talent going lots of places. Fuck the useless paper-pushers.
"In short, the Fed should stop caring about what happens to the "markets" (aka speculators) and do what it knows is best over the longterm."
Letting rates find their own level by market forces is what's best long term. But we can't be having that now, can we?
"Nobody wins if The Fed Hikes Rates": THAT is the point of the Greater Game. The 0.00000000001% wins. Everybody else is screwed.
Bullshit!!! Savers win! CAPITAL wins!!!
Useless fucking paper-pushers will actually have to work for a living again!!!
Let me be clear, FUCK EM!!!
I don't know about this logic. Maybe it works that way in the aggregate, but a couple friends of mine are on the verge of spending their USD to buy foreign assets at what look like bargain prices due to the strong USD versus foreign currencies. They plan to pull the trigger if the dollar rises a bit further, because that lowers their acquisition costs to the point they can actually do what they otherwise could not.
Now, maybe this isn't how the business economy works. Maybe what I describe is unique to a minority of transactions. I am not involved in enough international business to know about such things. However, knowing about this dynamic makes me wonder how bad a rising dollar really is for other nations. It makes products made in the USSA more expensive, but... who needs them? The USSA doesn't manufacture much of anything any more anyway.
So, I don't know what to think. My friends are thrilled to see the USD rise. Let's them invest in foreign lands in ways they couldn't possibly do just one year ago. How is that bad for those foreign lands? Hmmm?
Bingo. Just met with my team in Brazil. why? because, despite the political horseshit, we can actually get work done. I control that production, just like the operation in the U.S. Sure crazy shit can happen, but guess what, that's life. Crazy shit can happen anywhere now.
Get busy living or get busy dying. The bankers/financiers are mad that they will have to actually work for a living again, fuck em.
Under Read Thread.
Would it be asking too much to allow interest rates to find their own levels? The cost of borrowing should be reflected in the supply and demand of savings, not by central banks price-fixing rates.
ZIRP has wrecked the world economy, distorted asset prices, and misdirected capital. Stop ZIRP, QE, and corporate bailouts. End the Fed and allow the markets to function.
Yes, rates should also reflect or price risk.
Don't blame the strenghtening of the dollar. Blame those that continue to buy and support the dollar despite the trillions printed and put into the system.
There are people behind the decisions that is keeping the dollar moving up.
Right, b/c keeping it at 0% has been oh so effective.
i disagree with this article.
what the world needs is a normal lending/borrowing environment, not world wide QE, ZIRP and NIRP. And it should begin with an eeensy weensy 0.25% rate hike in the Good Ole' USA. The place that started all this financial debauchery.
Wow, Charles...
You've come to shilling for the Fed and their ilk? Tell me how many average citizens can borrow billions at 1/4 of 1 Percent? None. Yes, none.
Cost free money for our monarchs has created the greatest economic distortion and the near-intractable social separation in the nation since the Civil War.
The seeds of revolution have been sown. Let them eat KD.
In This Globally Interconnected Economy, "Nobody Wins" If Fed Hikes Rates
Fuck You. What am I chopped liver. I'm sure the Technocrats and Elites think like this.
Patriarchs that upon following their own agendas, those of their cartels, they are doing the best thing by Globalizing each and everyone of us.
Meanwhile, we have kids that don't remember the value of saving money or Interest Rates.
Meanwhile, the US Economy has been disassembled and the benefits are all going to Import-Export Nabobs.
Meanwhile, our Elderly, our Retired, our Fixed Income people have been shut out of the Economy all together. They are now Dependents or near dependents. They will expend their assets and go on welfare and lose their remaining humanity and pride.
Yes, meanwhile American Pride has Dried up.
The American Vision, American Liberty, the American Middle Class has shrunk by $3-$4 Trillion. With those that should have entered the Middle Class and those that fell out of the Middle Class, it must be something like 1/2 of it's expected size. Might be an interesting thing to research.
6 Years of heavy handed Fixed to TBTF & VICHY DC Treason, Sedition & Fraud. And really what low Interest Rates since 1999, 16 years.
- To Bad we don't have Honest Brokers in DOJ, FBI, SEC, FINRA, FTC, GAO, CBO, FED, Treasury, OCC, FSOC, BCFP, CFTC, FDIC, FHFA, SIPC
All this propaganda about a rate hike is nothing more than an attempt to give the FED validity. The FED is now nearly irrelevant and ANYTHING it does now will make little difference.
I have brought this up before, and will again.
IMO, the game now is dollar strength, and making the dollar a flame thrower currency, that destroys anything anti dollar.
People are fooling themselves if they think the Fed and US government are willing partners in the global, united colers of Beniton world order. They will destroy all things competing with the dollar, including emerging markets, BRICS currencies and their markets in particular, and of course PM's. Anything seeking independence from the almighty Dollar.
The game now is dollar hedgemony, at all costs. I say they hike rates in a scorched earth policy, maybe to 1-2 percent. Anyone hoping for more QE is fooling themselves. We are entering a new phase of the Flame Thrower dollar. What out if you own them, you will get burned!
Perhaps, but neighbors make deals all the time. Right now my Brazilian partners cannot get enough dollars. Would it really be that "unforeseen" if the Americas adopted the dollar in a more "official" manner. I mean, let's be honest, the peso has been a shit currency for decades. Most Brazilians have a lot of dollars and dollar-denominated assets already, they have been playing the dollar/Real game for a long time.
Interest rates rise and people save more instead of gambling in the stock market. So it seems to me that the 99% win and the 1% loses. Hike it already.
Nobody wins.............except the Satanic Tribe!
The problem with that is ALL are born into the family of Satan; that is God's word, and only those who trust in the redemptive work of Jesus are adopted into the family of God and out of the family of Satan...that is God speaking, not I.
So that begs the question; are you in the same "Satanic tribe" and unaware? Do the research on Jesus and the probability that He is the messiah (Hint: 100%) and second the probability that all, not most, but all the prophesies concerning him, and there are over 100 (but lets take 15 of them) and what is the probability that He could fulfill them? (0%) Zero percent probability and yet He fulfilled ALL of them and He has yet to fulfill the remainder, but as time moves forward, the Details in Ezekiel, Daniel and Revelation have gone from generalities (20 years ago) to details. We are moving forward at break-neck speed in immorality as a people and moving toward the remaining fulfillment's at the same pace.
Proof of the Bible can be summed up in one word. Israel. A tiny nation that should not even exist, was wiped off the earth with many other nation, much more powerful and greater by all human measurements, but yet in 1948, just as God promise, said or prophesied, Israel was restored...the probability of that is ZERO as well; yet it came to pass as it is written. Food for thought for anyone who values their life, their children's future...most believe they do, but their actions do not meet with their words or reality.
Helps: https://www.youtube.com/watch?v=NMlv21zGARM (2min)
https://www.youtube.com/watch?v=gub5uaiT3fo (4min)
https://www.youtube.com/watch?v=BBfcnp0dcKM (55 min) [MOST IMPORTANT QUESTION NEVER ASKED]
They will not raise rate unless they plan on collapsing the global economies. I'm not sure we have reached that point. Also, the Trump card is held by China and other BRICS nations; they can bring down the global economy when they decide to; however they must first boost their people's ability to buy products within. As always, these things unfold at a slow, yet steady, pace; more so than many would want and/or expect. It is a slow-burn, but it is burning.
Wait till the Christmas disaster comes across the globe; to be revealed early and often with the grand finale at the April earnings reports. This may be the year when AMAZON real value is price into the market; a once in a lifetime opportunity to short the company? Can't say since Bezo or Bozo has very elite connections.
Who's going to tell the banks to stop investing recklessly?
History is very clear on the answer, the guillotine.
Capital Will Relocate HERE!!!!!!!!!!!!!!!!!!!!!
Building New Factories and providing JOBS!!!!!!!!!!!
this is global economic WAR. Western mony printers against brics. Western cabal does not give s shit that sheep both west & east will be sacrificed.
That's how western cabal is fighting inevetable competition & developement from brics - by destroying everything
What if they announce QE26 and actually ease? Given the global data recently and a meltdown in asset prices across the spectrum, why would that be an unreasonable assumption? Would make for one hell of a short squeeze.
www.traderzoo.mobi
The HFT's are in full swing AGAIN; it will take one "glitch" and the markets unravel. The S&P 500 target is 1940 for the time-being, so it will go above it, then maybe below it, but at the end of the week it must be at or near it.
BTFD its FED software stupid
"In a globally interconnected economy, nobody wins."
The well connected insiders win.
Lets see what BS they come up with to back out of this one:
"The PCE index rose at a 2.3% annual rate in the April-to-June period, compared to 1.4% in the first quarter. That's the fastest pace since the second quarter of 2011. And the core PCE that excludes food and energy climbed at a 2% clip, up from 1.2%. The Federal Reserve believes the pickup in inflation has been exaggerated by temporary factors that should ease soon, but if the central bank is wrong, it could be forced to raise interest rates sooner than it would like. The Fed would like to see inflation in an annual range of 2% to 2.5%"
"Back in December, Fed policy makers pegged the economy’s normal longer-run unemployment rate somewhere between 5.2% and 5.5%. But in updated projections released on Wednesday, they lowered their estimate of the longer-run jobless rate to a range between 5% and 5.2%." BLS unemployment figures 2015 - Apr 5.4%, May 5.5%, Jun 5.3%, Jul 5.1%, Aug 5.1%.
'for whom the (rate hike) bell tolls?'
yes maria (ms. yellin) says jordan (frb) we have this moment in tyme [?] as both come to their senses as pablo (global interconnectivity) blows the bridge...
yes! 'the american consumer wins' PERIOD!!!
The warping of OUR economy is all the Fed need be concerned with here. If zirp had trickled down to rebuild our own middle class economy, it MIGHT'VE BEEN beneficial.
It clearly did NOT.
I still feel the CB has to raise because it's own credibility is at stake, regardless of the consequences for the EM's.
We must remember that the EM's are failing NOT because of a strong dollar, but precisely because previous western outsourcing brought us a decimated western CONSUMER. WE aren't spending, and consequently, THEY don't have income either. The dollar is stronger ONLY because it is the RC, AND our CB can emit all of them it likes without any foreign currency challenge.
Our dollar is NOT strong because WE are. We are NOT.
That's critical to bear in mind, because a strong dollar (absent a strong, well-employed consumer) at home will lead to deflation that leads to hyperinflation.
Why?
Because decimating production (wherever it takes place these days), inevitably leads to declines in supply TOMORROW.
THAT forces prices up, at the same time all economies (especially our own) are so beaten up. That foundation has already been laid, and cannot be reversed.
That's also known as a hyper-inflationary depression--the worst hell there is.
As weak as everything already is, it won't take much longer to get there...
m
Why the fixation on interest rate for a controlled money system instead of a fixation on eliminating the monopoly on money ? Anyone arguing for an increase or decrease in a monopolized money system doesn't seem to understand the real problem.