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Will The Fed Pick A Winning Combination?
Submitted by Raul Ilargi Meijer via The Automatic Earth blog,
It’s highly amusing to read all the ‘expert’ theories on a Federal Reserve hike or no hike tomorrow, but it’s also obvious that nobody really has a clue, and still feel they should be heard. Don’t know if that’s so smart, but I guess in that world being consistently wrong is not that big a deal.
Thing is, US economic numbers are so ‘massaged’ and unreliable, the Fed can pick whichever way the wind blows to argue whatever decision it makes. As long as jobs numbers get presented for instance without counting the 90-odd million Americans who are not in the labor force, and a majority of new jobs are waiters, just about anything goes in that area. Numbers on wages are just as silly.
And people can make inflation a big issue, but hardly anyone even knows what inflation is. Wonder if the Fed does. It had better, because if you don’t look at spending, prices don’t tell you a thing. They surely must look at velocity of money charts from time to time?!
The biggest thing for the Fed might, and perhaps must, be the confidence factor. It’s been talking about rate hikes for so long now that if it decides to leave rates alone, it will only create more uncertainty down the road. Uncertainty about the economy (no hike would suggest a weak economy), and also about its own capabilities.
If all you have is talk, people tend to take you a lot less serious. Moreover, the abject -and grossly expensive- failure of the Chinese central bank to quiet down its domestic stock markets has raised questions about the omnipotence of all central banks.
This morning’s spectacle of a 5% rise in Shanghai in under an hour near the close no longer serves to restore confidence, it further undermines it. Beijing doesn’t seem to get that yet. But the Fed might.
No rate hike is therefore an enormous potential threat to Fed credibility. And that’s a factor it may well find much more important than a bunch of numbers it knows are mostly fake anyway. It has for years been able to fake credibility, but that is no longer all that obvious. And delaying a hike will certainly not boost that credibility.
Sure, volatility is an issue too, but volatility won’t go down on a hike delay. It’ll simply continue – and perhaps rise- until the next meeting. There’s nothing to gain there.
Besides, don’t let’s forget how crazy it is that the entire financial world is dead nervous ahead of a central bank meeting, even as everyone knows it’s all just about a decision on a very small tweak in rates.
Yellen et al are very aware of the risks of that, even if they love the limelight it brings. All that attention tells people, meeting after meeting, that the US economy is not functioning properly, no matter what the official statements say.
There are ‘experts’ talking about the dangers of emerging markets if the Fed votes Yes on a hike, but those markets are not even part of its mandate. if Yellen thinks something can be gained from pushing emerging markets and currencies down further, she’ll do just that.
Still, all this is just pussyfooting around the bush. The Fed may have noble mandates to help the real economy, but it will in the end always decide to do what’s best for Wall Street banks. And these banks could well make a huge killing off a rate hike.
They can profit from trouble and volatility in emerging markets as well as domestic markets, provided they’re well-positioned. Given that they’ve had ample time, and it’s hard to answer the question who else is in a good position, we may have an idea which wind the wind will blow.
Increasing credibility for the Fed and increasing profits for Wall Street banks. Might be a winning combination. And if Yellen is realistic about the potential for a recovery in the American economy, why would she not pick it?
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I liked it before the FED became a video game
shemitah shemitah doom-pa-dee-do
We've got a market crash coming for you
shemitah shemitah doom-pa-dee-dee
If Yellen is wise, she'll listen to me
What do you get when you keep NIRP rates?
keeping the stocks inflated as much as you can?
Where are you at getting derivatives fat?
What do you think will come of that?
I don't like the look of it
shemitah shemitah doom-pa-dee-da
If you're greedy, you will not go far
You will live in crapiness too
Like the shemitah shemitah doom-pa-dee-do
needs more cow bell
Raise rates and the banks get an instant free interest rate increase from the Fed on reserves they are holding. The unfettered transfer of wealth to bankers continues.
It all comes down to interest rate swaps. Who is on what side of the interest rate swaps. AFAIK many swaps were for 5 years, so if you had swapped your low(er) fixed rate for a (then high) variable rate, you made mad cash during the interest rate cuts.
The question is, has that trade been exited/reversed, and many variable rates have been swapped for fixed rates, prior to a (expected) rate increase?
This?
http://projects.wsj.com/games/thefederator/?mg=inert-wsj
Hehe
The FED as a liar, now there's a concept. They've time and again made statements on what it would take to bump it up and now we have the naked emperor standing before the world saying "never mind"........
The FED was never involved in the business of information transmittal.
The FED was always involved in the business of information manipulation and coloring.
As far as the Fed Res is concerned, Wall St. IS the US economy. There's no winning combination, they're all in it together.
winning combo comes from the fed & congress/president which = cut the debt + balance the budget + raises rates
so answer = no
Is, or is not, the Fed, a political animal also...?
"...all this is just pussyfooting around the bush"
Eeewwww Yellen's bush
Rex Ryan says +1 for using pussy, foot and bush in the same sentence
Yellen doesn't have the balls to raise rates.
How I miss the Volcker rates when prime was north of 18%.
The FED is irrelevant.
Stop focusing on the dead horse.
Most of the numbers they use are nonsense. PCE removes items that get pricey because "people stopped buying them", understating true inflation. The job participation rate in the US takes into account the entire population, not just the working age population of 16-64, so as the US ages, the participation rate naturally declines (the UK uses only working age people).
By any measure, rates should not be zero, but the Fed is trapped, especially now that Goldman, Bridgwater, Larry Summers and the rest of the people that make the rules have ordered them not to raise
"Pussy footing around the bush"
Combining figures of speech? Or not? How about its better to be pussy footing around the bush with one bird in the hand rather than the two in the bush and killing two birds with one stone if they don't come out.
Who benefits?
This is begining to sound like an Alex Jones web site.
A Haiku
Raise the fucking rates
Begin the coming collapse
Banks will fuck anew
The Fed's only mandate is to prop up the criminal banks running it, which this video demonstrates using the Fed's own words and documents.
https://www.youtube.com/watch?v=jt377DV2BKs
I logged in JUST to upvote you and your link.
I hate to break the news to Raul but there's nothing 'noble' about the Federal Reserve Bank or it's enabler puppets in the u.s government where the farce is with them.
Raul has been consistent on this point of raising rates to profit the banks. Since at least 6 months ago. I feel like the Fed will do nothing only because doing nothing is the default. But this idea that GS and some others have had plenty of time to set-up on the side of a hike and now really want the profits, well that aligns perfectly with the last 8 years of insider trading.
I am forced to go with Raul's intuition: A hike on Thursday. Couched in all kinds of hand-waving ... but a hike. Maybe 0.2%
< Fed won't raise this month
< Fed WILL raise, this month
Given the recent 1000 point downdraft on the Dow, I think they'll try to split the difference and say "December for sure."
And then if the dollar and equities both fall apart in concert as appears likely? Well, that will suck.
Whatever ends up producing maximum suckage, that is what I expect them to do.
The whole world awaits the answer on the edge of their seats
over .2%.
Nope, nothing wrong here.
But does Obama approve of the Rate hike ??
He's calling the shots....
Tax the living fuck out of the rich, feed the poor.
They are going to raise rates and they plan to do bail-ins here in the US. You have to listen to Craig Hulet. He is rarely wrong.
If what backs up our fiat, which is "the full faith and credit of the United States," becomes worthless, that means the United States has become worthless. And it will at that point cease to exist.
Worthless, hell. It won't even take that. If gas goes to 40 bucks a gallon and bread to twenty, there will be a political collapse. Guaranteed.
That's why, in the end, the Fed will be forced to defend the dollar, whatever it takes. Of course, with the can kicked this far down the road, a deflationary reset might cause a political collapse also. They should have allowed the reset eight years ago, when all that was at stake was the banking system. Now it's the whole ball of wax.
Good job Greenspan, Bernanke, Yellen...
In Yellen's previous life she was a gypsy fortune teller.
Banks can't make a killing of rising rates if no one can pay those rates.
The reverse is true.
When no one can pay the rates, but they need the money, they will borrow on hope that a miracle will arrive, and they will be able to service the debt.
For formerly middle class people, that hope is in the form of a lottery ticket. For business people, it is a business project.
In either case the chances of a payout are minimal.
The result fo the banks in all cases is default on their debt book, the destruction of their depositor's loaned out money, which was simultaneously promised to loan recipient, and again to depositor. That 'loaned out' cash or the depositor's cash, one or the other, is hypothetical...because though treated as two sets of cash, it is in fact only one. When loan recipient can't pay, he's the recipient of the cash, and the depositor is out of luck.
Except the reserve ratios are much worse that that 50-50 scenario. Theoretically, they can loan out $90 of every deposited $100. In fact they simply keep all of the money, and then loan out $900 that is nothing more than an accounting entry. It is a 10% reserve either way. But the second variant earns them more interest by a factor of 10.
EXCEPT...the loan recipient will either deposit that money, or someone he pays with that money will deposit it. In either case it will be deposited in a bank. That new bank cannot differentiate between 'commercial bank accounting entries' and so-called real cash. One reason is that the only difference is in who issues it. When the Federal Reserve Banks issue it, it *might* be on fancy linen paper certificates we all recognize. Otherwise it is the same.
REGARDLESS, the new bank will treat the newly deposited 'accounting entries' the same as the first bank did...and loan them out up to their reserve ratio.
So... when a loan-recipient doesn't repay the loan plus interest, the loan defaults.
When the loan defaults the loaning bank's accounting entry goes away.
When the accounting entry goes away, the loan recipient's deposit disappears...and his bank's loan-book which was based upon his deposit disappears (which will be a multiple of his actual deposit). And those second set of loan-recipient's loans will go up in smoke - totally disappear like fog in the sunshine - because they never actually existed in the first place, but were only unsupported accounting entries without a physical basis. And so-on and so-on and so-on.
And each time that happens the currency represented by those loans actually ceases to exist, which leaves that much less currency in the economy for other loan recipient's to pay their loans, and also leaves less currency in the economy as a whole to denominate the same goods and services, which leads to price declines (everything / circulating_currency = general price level).
IT IS ACADEMIC...and yet misunderstood, that 'currency' is loaned into existence not just by the central bank, but by every bank. And when their loans are not repaid at interest, the currency evaporates, and if the central bank does not keep expanding the money supply, there can never be enough currency to pay back both the principle and the interest.
THIS IS DEFLATION.
Of course...if the central bank can produce as many digits as they want - and they CAN - then they can just print a number of digits that is equal to whatever loans defaulted.
EXCEPT THEY DON'T AND CAN'T KNOW HOW MUCH IS NEEDED UNTIL TOO LATE...so instead they just 'add zeros to commercial banks' reserve accounts' as Mr Bernanke said on 60 Minutes.
But what does that teach the banks? That they can do what ever they want, write any check, make any loan, and that there will be no consequences?
And what does that teach the regulators, and cronies of bankers? What do they learn when they see some getting something for nothing, doing all the wrong things, and others pay the price for their failures?
And what do businesses learn from this? That if only they developed financial arms to their businesses, they too can own a printing press?
And what does the public at large learn? What is there to learn when hard work and hard-won savings evaporate in a tidal wave of money-printing dillution of the value of their savings? What do they learn when they see bankers, and banker cronies living high on the hog doing little, nothing, or even the wrong things, while they must not only suffer to work...but get suffering IN RESPONSE to work?
- The banks try to buy power with funny-money from their own personal presses.
- Regulators realize that the power to create money trumps other powers and will regulate everyone or anyone other than someone with that power.
- Businesses all adopt banking as at least a secondary business...and then use that power in rent-seeking schemes, to influence government to jail people who don't buy enough of their products, or to tax everyone in order to subsidize them. Or maybe they realize these accounting entries represent nothing but a legalized plunder scheme, and chose to avoid them in favor of real things, whose real value cannot disappear.
- The common people will stop working, leading to a shortage of real goods, and prefer to be wards. And when that doesn't work (because it can't - there is no free lunch in this life) they come to understand that those above them are no better than themselves, just more connected, and less numerous, and that those few have abused them horribly....and then they realize these accounting entries represent nothing but a legalized plunder scheme, and chose to avoid them in favor of real things, whose real value cannot disappear.
Or maybe then they go totally batshit nuts. Suburban lamp posts become gallows. Think 'Mad Max'.
It has happened everywhere at one time or another...but the economy is now global.
The possible outcomes are:
- Bankers committ suicide from shame, and voluntarily stop printing money, allowing their loan-books to vaporize, themselves to be converted into paupers, every loan everywhere goes up in smoke, and possession is again 9/10ths of the law. DEFLATION.
- Everyone with a printing press takes advantage of it to the fullest extent possible...and newcomers enter the business if they can. They print and print until there is no relationship between production and currency- at which point production collapses and Mad Max ensues.
- - Everyone with a printing press takes advantage of it to the fullest extent possible...and newcomers enter the business if they can. They print and print, but they know it is a con-job. And their only concern is to be in the receiving side of the con. So they print, and buy real stuff, and print some more, and buy more. A tidal wave of currency, much of it produced for the occasion, seeks out any and all real goods. HYPERINFLATION. Mad Max might ensue.
I think we already bypassed the first possible outcome in 2008. I don't think banksters will kill themselves while the option exists to kill everyone else.
So...any 'hike' in rates by banksters needs to be understood in that light.
No one can pay higher rates because there isn't enough currency in the system to repay them. No matter what, the hike itself will be a blip, and nothing more. The psychological effect of that blip is the significant factor. And with belief in institutions at historic lows...I would bet on one of the last two scenarios.
Get what you're sayin', but if a .025% increase can do this - the whole world is f*cked anyway and we might as well give up tryin' or become DWTS, The Voice, etc junkies like so many others. I would hope a slow, steady, announced schedule of rate increases could result in the ability to plan. But the FED does serve Wall Street in accordance with its TRUE #1 mandate, so who knows?
Not sure you really do get what I am saying.
How much additional weight can a drowning man carry before failing to reach the surface? It's a trick question. If he could reach the surface he would not be drowning.
The economy's debt-to-equity has too little equity to service the debt which currently exists. Yet our monetary system requires $1+ of debt in order to create $1 of currency.
BECAUSE INTEREST COMPOUNDS, at some point an additional $1 of currency costs $INFINITY of future debt.
But that point cannot actually be reached. Because to collapse, the debt-service portion of the debt resulting from currency production only needs to be more than the amount of currency produced.
When taking on an additional $1 of debt means that you'll owe $1.10 in your first payment on that debt...there's no incentive to borrow. Yes?
Get it?
There's not enough money to service the debt at interest RIGHT NOW. THAT WAS WHAT HAPPENED IN 2008.
So they took out exponentially more debts to print currency. But the ratio at creation of dollars is still $1+ of debt to create $1. MEANING THE 'SOLUTION' MAKES THE PROBLEM EXPONENTIALLY WORSE...BUT DELAYED SLIGHTLY.
Raising the rates is not ill-advised. It is impossible BECAUSE THERE IS NOT ENOUGH CURRENCY IN EXISTENCE TODAY TO SERVICE THE DEBT AT CURRENT RATES...AND BECAUSE THE ACT OF CREATING MORE CURRENCY WOULD EXPAND THE DEBT-OVERHANG EVEN MORE.
So, can the Titanic carry just one more passenger as it goes down, without sinking?
No...because it is already sinking.
The Fed is thinking like the cleanest dirty shirt, that it will receive equity flows from abroad by a symbolic rate rise. They miss the implication of what it means to be the reserve currency in fact.
Whatever is gained by international money flows will be lost (AND MORE) in loss of real productive value.
They are trying to dig their way out of a hole. It is impossible. The only way out is climbing, not digging.
very simple fact. Banks have increasingly inflated service charges. Have jacked up % on crdit cards to the average, middle class regardless of credit score.
I know. I got a % rate notice on a Mastercard I held for 20 years. Always was tied to prime. Now is 19.9% even though not one payment has been missed nor the balance carried forward for length. The rape is here already.
#1: Raise rates to 5%.
#2: Close down the federal reserve.
#3: Close down the federal government.
Then let the markets do their thing... put all the banksters out of business, and hopefully hanging from trees shortly thereafter.
Hey Ann, did you get a good shake? Is the compound intact?
Ah, clever. So you imagine my digs are in Chile? Good try, but you know my privacy policy... I only reveal I'm in the southern hemisphere somewhere between the general vicinity of Perth (western Australia) and Ascension Island (mid-Atlantic).
As for butterscotch shakes (as in milk-shakes)... sounds good, but haven't had one in ages. Me and my digs are just fine, and would be whether we were anywhere near Chile or not. Hey, you saying there's a tsunami headed my way? Just a second, better look out the window! Hahaha. </headfake>
Hope all is well with you, in your digs on the rim of crater Plato. From time to time I try to spot you through my modest telescope (though your digs are too small, too well camouflaged, and usually don't observe when the moon is up).
I suspected Argentina or Bolivia, but borders aren't a thing for earthquakes and anarchists.
Glad to hear it. I'm sure you've accommodated local calamity risk in your dig design, and have a few bug-out plans besides.
If the rest have any chance at all, it's through the effort of oracles. Things will be well soon enough. Keep the telescope focused and you'll see me sign.
Please allow me to quote Raul's article: "The Fed may have noble mandates..." Well' there you have it, the crux of every Fed-related problem we face. Everyone, dammit, EVERYONE, even stalwart Fed-haters at Zerohedge, have drunk the Kool-aid of deception. PLEASE PEOPLE, get this straight: There is no "dual mandate" as is constantly claimed.
The mythical, vaunted mandates come from the Humphrey-Hawkins bill, which is little more than pie-in-the-sky suggestions, not "mandates." The same bill also "mandates" that Congress balance the budget every year. Hmmm...I don't hear Congressmen bemoaning that their hands are tied by "the mandate."
THERE ARE NO FUCKING MANDATES. We only strengthen their hand when we use their bullshit jingoistic lingo.