The US is Back in Recession With Interest Rates Already at Zero

Phoenix Capital Research's picture

The Fed has now kept interest rates at zero for 81 months.

 

This is the longest period in the history of the Fed’s existence, lasting longer than even the 1938-1942 period of ZIRP.

 

And the US economy is moving back into recession. Consider that…

 

1)   Industrial production fell five months straight in the first half of 2015. This has never happened outside of a recession.

 

2)   Merchant Wholesalers’ Sales are in recession territory.

 

3)   The Empire Manufacturing Survey is in recession territory.

 

4)   All four of the Fed’s September Purchasing Manager Index (PMI) readings (Philadelphia, New York, Richmond, and Kansas City) came in at readings of sub-zero. This usually happens when you are already 4-5 months into a recession. (H/T Bill Hester)

 

Why do these issues matter?

 

Because they are happening at a time when interest rates are already at zero.

 

Never in history has the US entered a recession when rates were this low. And it spells serious trouble for the financial system going forward.

 

Firstly, with rates at zero, the Fed has next to no ammo to combat the contraction. Some Central Banks have recently cut rates into the negative. But this is politically impossible in the US, particularly with an upcoming Presidential election.

 

This ultimately leaves QE as the last tool in the Fed’s arsenal to address an economic contraction.

 

However, at $4.5 trillion, the Fed’s balance sheet is already so monstrous that it has become a systemic risk in of itself. And the Fed knows this too… Janet Yellen, before she became Fed chair, was worried about exiting the Fed’s positions back when its balance sheet was only $1.3 trillion.

 

Moreover, it’s not clear that the Fed could launch another QE program at this point.

 

For one thing there is the upcoming Presidential election.

 

Regardless of one’s political affiliation, it is clear that wealth inequality has become one of the big issues for the election. With numerous media outlets catching on to the fact that QE exacerbates this, the Fed’s hands are tied unless we get a full on market meltdown.

 

So, the US economy is weakening at a time when the bar is set quite high for the Fed to enact any significant policy changes. With interest rates already at zero, the Fed cannot cut rates. And with Congress breathing down its neck and an election looming the Fed won’t be able to launch another QE program unless we experience a full-scale financial meltdown.

 

Thus, the Fed’s hands are tied… at a time when the economy is faltering and the stock market is beginning to weaken dramatically.

 

Another Crisis is brewing. Smart investors are preparing for it now while stocks are still holding up.

 

If you've yet to take action to prepare for this, we offer a FREE investment report called the Financial Crisis "Round Two" Survival Guide that outlines simple, easy to follow strategies you can use to not only protect your portfolio from it, but actually produce profits.

 

We made 1,000 copies available for FREE the general public.

 

To pick up your FREE copy, swing by…

 

https://www.phoenixcapitalmarketing.com/roundtwo-ZH.html

 

Best Regards

 

Graham Summers

Chief Market Strategist

Phoenix Capital Research

 

 Our FREE daily e-letter: http://gainspainscapital.com/

 

 

 

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we built this city's picture

Phoenix guy - i am starting to believe you might be an internet troll-

dude are you real?

 

S&p is 2011 only down 5% !!

Okay we all know economy sucks and er are in recession...

You are living on Mars!

Fed has full control and markets are soaring 

you should get another job

Mad Muppet's picture

What do you mean "back in recession"? We never left.

Gadocat99's picture

QE is a non-starter with the budget crisis looming, election year posturing, and its proven lack of positive effect.  NIRP is not an option because the population is not going to stand for it -- bail-ins will similarly not work, 380 million guns and all.  So, they will seek funds from the 401K system.  They will probably use the pension crisis in Illinois as spark plug to create a national pension system backed by Treasuries, purchased through 401k exchanges.  The folks that will be affected most, middle class, will be in the minority and will be excoriated as elitist and selfish for making a fuss.  After that, all I can see is confiscation and big trouble.

SMC's picture

Sooner or later, perhaps an unbought economist will recognize that correlation does not imply causation.

Essentially free money for “Just Us” while charging small businesses 10%+ and using government alphabet soup agencies to strangle them does not foster innovation.

The only way to win is not to play their game.  Get off the hamster wheel.  Invest in yourself.

ejmoosa's picture

The only silver lining is that in 25 years we will look back and call this the Obama Super Depression.

If we are still around in 25 years.

Memedada's picture

Well, I hope that in 25 years from now people will have realized that Obama was just another actor on the stage. And that he was only reading the script written by his Masters (his capitalist/fascist overlords).

The ‘recession’ will be named “the great theft” – as the London ‘Taxi driver’ who made a film called: This is not a recession – it's a robbery.  

Mentaliusanything's picture

Helicopter money coming. its a once only and the recipe is the same and it ends exacty like this

https://www.youtube.com/watch?v=GRxohDs2-UM

Now send money for being so wise and smart

 

Jack Daniels Esq's picture

BBG keep feeding Yellen Krispy Kremes, Barry watermelons - US is #1

luckylongshot's picture

What continues to astonish me is the talking heads that still try to explain what is happening as being a cyclical downturn. Zero interest rates and a dead economy show very clearly the problem is systemic- there is no other explanation. What we are seeing is that the private banking parasite has got so big it is killing the US economic dog and in this situation low interest rates are not helping. What is needed is to kill the parasite and the way to do this is cancel all debt, nationalise the banks as they fail and move forward with a public banking system. Thomas Jefferson foresaw all this 200 years ago, when he said that if the American people ever lost the right to create their own money, the private banks would so abuse their control of this right that the American public would wake up one day penniless on the land their fathers conquered. That day has now arrived and sadly the media is now either so corrupt or so stupid that they cannot see in front of their noses what Jefferson saw clearly 200 years ago.

GoldIsMoney's picture

Oh, no problem, just spend even more and aquire some more debts. FED will happily buy that crap

Ajax_USB_Port_Repair_Service_'s picture

All the previous QE didn't fix the economy. So just let it die already!

Duc888's picture

 

 

 

The US eCONomy has been in a depression for 6+ years.

 

 

TheInfoman's picture

"However, at $4.5 trillion, the Fed’s balance sheet is already so monstrous that it has become a systemic risk in of itself."

I've always kinda wondered about that. The Fed creates a loan out of thin air and somehow they should be worrying out how it turns out.

RaceToTheBottom's picture

The Bad Bank strategy becomes the Bad Central Bank strategy.

Who would have thunk that could occur?

MrTouchdown's picture

Bring on the nationalizations! Then Old Yellener can just make "loans" directly to the bureauocracies, which are totally not Wall Street *wink*

I can't wait to see how these assholes twist and turn. Remember! There was a financial crisis when the nation was trying to decide if McCain's or Obama's dick would hurt less. Obama promised lube.

Incidently, Bernie is promising gallons of lube.

Lost in translation's picture

"We at Pheonix Capital pride ourselves on being absolute masters of stating the obvious."

Funny Money's picture

...and eventually they'll be right.

SILVERGEDDON's picture

Sooo - does that mean i gotta keep on jerking off the dog to feed the cat ? 

Damm dog is getting too thin to eat.

Life as a middle class American, with first world problems, coming soon to your neighborhood.  

Md4's picture

But...you CAN always eat the dog. Under the circumstances, sounds like very lean protein, although, it's probably just one meal.

The flathead, on the other hand, is worth more skinned, especially with winter coming...

Besides, I have NO idea what cat would taste like, but I am sure it would require one helluva sauce.

Probably not enough meat to bother with tho...

m

Conax's picture

Tastes much like stringy rabbit.

Mmmm, apocolypse hasenpfeffer.