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The Central Bankers' Death Wish
Submitted by David Stockman via Contra Corner blog,
This is getting just plain ridiculous. The robo-traders were raging to the tune of 300 Dow points Thursday after Mario Draghi confirmed that he actually is a complete monetary lunatic. And now that the People Printing Press of China has followed suit overnight, they are piling on for more.
In fact, Europe is stranded in economic stagnation because statist dirigisme and the massive crush of welfare state taxation and finance have ground enterprise and productivity to a halt. But Draghi says it’s all China’s fault, and that he will fix their dereliction with even more monetary madness:
In a news conference, Mr. Draghi stressed the “downside risks” to both economic growth and inflation arising from slowing growth in China and other large developing economies, as well as weak commodity prices.
These are the words of a slow-witted man who was born yesterday. That is, they evince an economic model that says every single year, month and day of prior history is irrelevant; and that regardless of how we got to the present moment the answer is always more heavy-handed central bank intrusion in the financial system in order to achieve an utterly bogus 2% inflation target.
In fact, the so-called slowdown in China is the best thing that ever happened to Europe, as is the present spot of unusually low consumer inflation. And there is no mystery as to why these things are happening.
China and the rest of the world have just come through a mind-bending credit binge which took global debt from $40 trillion in 1994 to $225 trillion at present. China was in the forefront of that binge, sporting a 56X gain in outstanding credit during the same two decade period (from $500 billion in 1995 to $28 trillion at present).
The effect of that freakish $185 trillion debt eruption was a worldwide crack-up boom. It was initially manifested in a massive expansion of unsustainable debt financed consumption in the US and other DM economies and runaway fixed investment in China and the other EM economies which supply it.
Accordingly, much of the $40 trillion of global GDP growth shown in the chart reflected purchase money output, not sustainable organic gains in productivity and earned incomes.
Needless to say, purchase money GDP disappeared the instant that DM households could no longer tap their home ATM to spend borrowed money on restaurants and new kitchen countertops; and EM government and enterprises could no longer borrow to build uneconomic steel plants, empty luxury apartments or bridges that no one takes to anywhere.
What this crack-up boom cycle entailed then is a monumental, two-phase global deformation that lies at the heart of what Draghi was babbling about yesterday.
Initially, it led to a surge in global demand for energy, metals and other raw materials in excess of currently installed capacity, thereby fueling drastically higher commodity prices and periodic eruptions of consumer level inflation. Thus, oil went from $20 per barrel to a peak of $150 during the commodity inflation phase; and copper went from $1 to $4 per pound and iron ore from $30 per ton to $200.
Then, in the second phase of the global crack-up boom, drastic financial repression by the world’s central banks after the 2008 crisis led to massive over-investment and malinvestment in production capacity. This unprecedented CapEx boom ranged from the new iron ore mines of western Australia to the shale patches of the North Dakota Bakken to the excess steel and auto plants of China to the containership and bulk carrier capacities of the world’s shipping lines.
In fact, these massive additions of fixed capital and supply capacity throughout the global commodity/industrial complex are still coming on stream just as the leading age of the global credit Ponzi is coming to an abrupt halt in China. Accordingly, throughput volumes are faltering and are actually declining in many sectors, while the swelling availability of high fixed costs production facilities is leading to an unprecedented wave of wholesale price reduction.
The global crack-up boom cycle is evident in the Bloomberg commodity index, which has now plunged to below 2001 levels. Indeed, the area under the graph line tracks its two-phases almost perfectly—–with the deflation phase incepting in 2012.
This huge global impulse of commodity inflation at first and now payback time of commodity deflation is being relentlessly transmitted down the supply chain. In the case of US producer prices for all commodities and for manufactured goods, respectively, the global cycle is plainly evident in the graph below.
Between 1995 and the May 2014 peak, US wholesale prices for all commodities rose by 70% or by 3% per annum. Likewise, the PPI for manufactured goods rose by 27% through early 2015.
However, both are now rolling over as the world’s deflationary payback phase gathers momentum and transmits down the price chain. The US wholesale index for all commodities is down by 9% and manufacturing goods by 1% since their respective peaks.
Stated differently, the world has had its quota of consumer inflation and then some over the past two decades. Now it is payback time as the “excess supply” phase of the global crack-up boom supplants the “excess demand” phase.
In that context, eurozone consumers are not being deprived of what central bankers apparently believe to be their God-given right to CPI inflation and the continuous erosion of the purchasing power of their wages. In fact, the eurozone consumer price index at 118.7 in September reflected a 2.1% per annum rate of gain since 1996.
Do the mountebanks who run the ECB, along with the entire central bankers guild of the world, not believe that history has actually happened? Do they hold that NASA didn’t really land on the moon, as it were?
Do they think that there is some crank principle of economics that requires consumer inflation to be metered out in exactly 2.000% annualized rates every year, quarter, month and day?
Folks, Mario Draghi’s central banker view of consumer inflation is just brain dead ritual incantation. Self-evidently, the rate of change does not need to be smooth as the skin on a baby’s butt for optimum economic performance.
In fact, 2% inflation is a purely religious proposition that is unrelated to the prosperity of main street; it is no more relevant to gains in real wealth than the rite of full immersion baptism.
Indeed, the 2% inflation meme is so threadbare that it needs to be called out for what it is. It’s a convenient cover for the radical usurpation of power undertaken by the world’s central bankers during the last two decades. And it survives only because it serves the interest of Wall Street gamblers and the world’s politicians and fiscal authorities alike.
The latter get to run up endless public debt because the central bankers buy it up under QE and drive the carry cost virtually to the zero bound. Likewise, the top 1% of financial gamblers cannot get enough of the 2% inflation hoax because it means free carry trade money as far as the eye can see.
In short, Europe, the US, Japan, China and most of the rest of the world is in thrall to a tiny coterie of power-hungry central bankers. If you do not think they are driving the financial system to the mother of all bubble crashes, just ponder the following justification by a top ECB authority for depriving eurozone consumers of even a brief spot of zero inflation in their cost of living:
At Thursday’s news conference, ECB Vice President Vítor Constâncio ticked off a litany of reasons why prolonged weak inflation, or sustained falls in prices known as deflation, worries central bankers and justifies the massive stimulus many have undertaken. Falling prices may cause consumers to put off purchases if they expect that trend to continue, he noted. It also raises the cost of servicing debt. In addition, he noted that official consumer price measures may overstate the extent of inflation.
For deflation to take hold, consumers and businesses would have to expect price falls to continue. Central bankers want to persuade households and financial markets that, whatever its current reading, the inflation rate will be around their target over the medium term, in which case they describe inflation expectations as being “anchored.”
Mr. Draghi warned of a possible “de-anchoring” of expectations if the inflation rate remains low for a long time, and particularly if oil prices fall further. “These risks have gone up and we want to be vigilant,” he said.
This is just plain rubbish. These half-baked propositions would have received a falling grade in even a junior college introductory economics course just 20 years ago.
So there is no alternative except to take cover because the latest stock market rip is based on pure central bank hopium
Indeed, Mario Draghi has confirmed once again that the world’s central bankers have a monetary death wish. Unlike the gamblers who bought Cramer’s top 49 stock picks, the best course of action is to sell, sell, sell—–and do it now.
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Sell and get what???? Paper dollars???? Hahahahahahahahahahahahahahahah......
That is the dilemma for many.
Yes, sell and get paper dollars; and then immediatly use those paper dollars (while they still have the illusion of value) to buy real stuff, like precious metals (gold, silver, lead), prepper items, farm land, etc.
Very good plus another point that has recently been proven with NIRP is that it causes a 60% rise in asset prices.
Now, doom and gloom anything you want but that doesn't mean you can't make money.
And then there's the 2 to 3 comming shortsqueeze we can expect so there could be spikes to the upside in the stockmarket that will make people go crazy.
Like the housing bubble where many flippers got caught with their flipper down, so will many of the high flying businesses built and supported by easy credit/debt. Shareholders beware, Time is nigh.
"So there is no alternative except to take cover because the latest stock market rip is based on pure central bank hopium"
Yeah right. BTFD.
The deck chairs have been re-arranged and to band is playing happy music, so now we wait for another announcement that all is well while the ship starts listing.....
Yellen standing on the deck with Gartman, Cramer, Draghi etc singing "Nearer my god to Thee" as the Economy slides into the frigid waters....
Nope. That quartet only knows one tune: "Happy Days Are Here Again", and that's what they'll sing until their ears are underwater.
Edit: Okay, I lied. The quartet knows two tunes -- the above and "Tomorrow". The good news is they can sing both simultaneously.
"So come on, come on, let me hear it again, you're onlyyyyyy a daaaaaay aaaaaawaaaaaaay"
Iceland Just Jailed Dozens of Corrupt Bankers for 74 Years, The Opposite of What America Does
The prosecution of the Icelandic bankers represents an accountability that does not exist in America.
http://www.alternet.org/economy/iceland-just-jailed-dozens-corrupt-banke...
i predict at least a 100 point ramp in the last 2 hours of trading in the Dow...
yeah aggressive , but they always tend to over do it just for kicks...
PPT shows up at 3:30 ramp...just to show us all how's it's done...keystrokes work just as good in the pos as it does in the neg.
that reminds me,i need to go and buy more toilet paper for my prepper stocks.
It's very late, so all i'll say is: we need some crack currency. http://zhc0.com
Help me out, it is far from a one man band, but I am the only spruiker.
15horses1donkey.
IF ZERO HEDGE HAD A FUCKING CURRENCY OF IT'S OWN, IT WOULD BE MINTED IN INCORRUPTABLE NON HYPOTHECATED NON DERIVATIVE NON MARGIN ABLE SILVER OR GOLD.
Jesus, fucking kids these days. You all think technology is a miracle. All it is is electrons that can be made to go poof any fucking minute now.
Crypto currency is just a fancy name for digital fractional reserve banking - without the reserve, or the bank.
If I blew up your phone right now, you would look like a cow at the slaughterhouse just at the moment the bolt gun goes off - " How could you do this to me ? What'll I do now ? "
Improvise. Adapt. Overcome. Triumph over adversity.
And, transform your idea into minting a fucking physical coin out of noble metals, with Tyler's permission before he copyright lawyers your ass into bankruptcy.
Nope, welfare is the crumbs given back to sustain the unsustainable.
In 2013 there was a net extraction of taxes in Ireland of 19 billion euros......that 19 billion was not respent into the economy creating a purchasing power crisis that the authorities call a housing crisis
It went into the money monopolists pockets
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First Carlist War Main article: Carlism First Carlist War Part of the Carlist WarsThe Battle of Mendigorría, 16 July 1835. Date 29 September 1833 – 13 May 1839 Location Spain Result
Liberal victory
- Lord Eliot Convention
- Convention of Vergara
BelligerentsCarlists
Supported by:
Miguel I of Portugal
Liberals
Supported by:
France
United Kingdom
Maria II of Portugal Commanders and leaders See list
- Carlos V
See listTomás Zumalacárregui
Ramón Cabrera
Rafael Maroto
González Moreno
Miguel Gómez Damas
Sebestian Gabriel
- Maria Christina
Casualties and losses Carlists: 15,000-60,000 Liberals: 15,000-65,000Isabella II
Genaro de Quesada
José Ramón Rodil
Francisco Espoz
Luis Fernández
Baldomero Espartero
Isidro de Alaix
Jerónimo Valdés
Marcelino de Oraá
Manuel O'Doyle
French: 7,700
British: 2,500
Portuguese: 50
The First Carlist War was a civil war inSpain from 1833 to 1839, fought between factions over the succession to the throne and the nature of the Spanish monarchy. It was fought between supporters of the regent, Maria Christina, acting for Isabella II of Spain, and those of the late king's brother,Carlos de Borbón (or Carlos V). The Carlists supported return to an absolute monarchy.
Historical backgroundEditAt the beginning of the 19th century, the political situation in Spain was extremely problematic. During thePeninsula War, the Cortes met in Cádizand elaborated the Spanish Constitution of 1812, at that point possibly the most modern and most liberal in the world. After the war, when Ferdinand VII returned to Spain (1814), he annulled the constitution in the Manifest of Valencia, and became an absolutist king, governing by decrees and restoring the Spanish Inquisition, abolished by Joseph I, brother ofNapoleon I.
Francisco Cea Bermudez, an important official during the Trienio Liberal, presided over the 1832-1834 cabinet
James (Jacob) Rothschild, head of the French branch of the family
Nathan Rothschild and his brother James increasingly involved in Spain, providing the key financial platform for the Spanish governments
The 1805 Battle of Trafalgar had all but shattered the Spanish navy, with thePeninsular War leaving the Spanish society overwhelmed by continuous warfare and badly damaged by looting. While the Spanish Empire collapsed, the maritime trade trickled to the Americas and Philippines, and Spain's military struggled to keep their colonies, withMexico getting its independence in 1821. The customary overseas revenue to the metropolis was at a historic low, the royal coffers were empty. Financing (solvency) and recruitment to the military became an overriding concern for the Spanish Crown, with the governments under King Ferdinand VIIfailing to provide new solutions and stability.
During the Trienio Liberal (1820-1823), the progressive liberals decided to resort to the international money lenders to revert the economic meltdown Spain was facing. They turned to Paris, and particularly London, where many liberals (many of themFreemasons) had fled on Ferdinand VII's comeback (1814). In London and Paris, the liberals ruling (shortly) Spain engaged in negotiations with the Jewish financiers Nathan Rothschild andJames Rothschild. They bailed out the Spanish liberal regime, with Great Britain also supporting it on its last stage, not so much on the strength of its liberal tenets but with a vested view to securing the debt engaged in previous years.[1]
The 1823 intervention of a reactionary international alliance, the Sacred Alliance, restored Ferdinand VII on the Spanish throne, but the Bourbon king refused to assume the debt incurred by the 1820-1823 liberal rulers with the Rothschilds based in London and Paris. For more than a decade, the pending liberal debt became for Ferdinand VII's negotiators a persistent sticking point with the Jewish financiers during talks for new loan requests.[2]
Against a backdrop of on-off bankruptcy and solvency issues, towards the end of his life, Ferdinand VII promulgated the Pragmatic Sanction giving hopes for a liberal rule. Ferdinand VII of Spain had no male descendant, but two daughters, Isabella (later known as Isabella II of Spain) and Luisa Fernanda. So he promulgated the above "Pragmatic Sanction", to allow Isabella to become Queen after his death, returning to traditional rules of Spanish succession. Without the abovePragmática Sanción, Carlos de Borbón, the king's brother, would have normally become king.[3] He and his followers, such as Secretary of Justice Francisco Tadeo Calomarde, pressed Ferdinand to change his mind. But the agonizing Ferdinand kept his decision and when he died on 29 September 1833, Isabella became the legitimate queen. As she was only a child, a regent was needed, so her mother Queen Consort Maria Christina was appointed.
A strong absolutist party did not want to lose its position. Its members knew that regent Maria Christina would make liberal reforms, so they looked for another candidate for the throne; and their natural choice, with the background of the Salic Law, was Ferdinand's brother Carlos. The differing views on the influence of the army and the Church in governance, as well as the forthcoming administrative reforms paved the way for the expulsion of the ultra-Conservatives (absolutists advocating for Carlos) from the higher governmental circles, not that it opened the doors to the most progressives.
Cea Bermudez's centrist government (October 1832-January 1834) inaugurated a period of opening and return to Spain of many exiles in London and Paris, e.g. Juan Álvarez Mendizabal(born Méndez). The rise of Cea Bermudez was followed by a closer collaboration and understanding with the Rothschilds, who in turn clearly encouraged the former's reforms and liberalization, i.e. the new liberal regime and the incorporation of Spain to the European financial system.[4] However, with state coffers yet again empty, the impending war, and the Trienio Liberalloan issue with the Rothschilds still not settled, Cea Bermudez's government fell.[5]
Confronted with war breaking out in Basque territory and before matters ran out of control, the envoy of regent Maria Cristina's government, the Marquis of Miraflores (a middle-of-the-road liberal), contacted London's City bankers to open a line of credit with the Spanish Treasury (thus pay the next installment of external debt due in July 1834 and get new credit), as well as the British Government in order to garner its political endorsement. An agreement with Nathan and James Rothschild and a loan advance of 500,000 pounds to the Marquis of Miraflores paved the way to the establishment of the Quadruple Alliance that sealed British and French protection to the Spanish government, including military operations (April 1834).[6]
As written by one historian:
A vivid summary of the war describes it as follows:
The autonomy of Aragon, Valencia and Catalonia had been abolished in the 18th century by the Nueva Planta Decrees that created a centralised Spanish state. In the Basque Country, the kingdom status of Navarre and the separate status of Álava, Biscay, and Gipuzkoa were challenged in 1833 during the central government's one-sided territorial division of Spain. The resentment against the growing intervention of Madrid (e.g. attempts to take over Biscayan mines in 1826) and the loss of autonomy was considerably strong.
Basque reasons for Carlist uprising The contenders The combatants The war in the Northern Front The war in the Southern Front The end of war Consequences Battles of the First Carlist War (Chronology) References Further reading External links Read in another language Last edited 27 days ago by an anonymous userDid this motherfucker really just quote an entire wikipedia article?!?!?!?!?!
And that's why they call him the Dork of Cork...
Yeah baby, read Niall Ferguson House of Rothschild for a alternative History.
Having walked around Northern Spain for more then a year of my life I know who to believe.
Capitalism as we know it today is finance capitalism.
It's been like this continously in Northern Europe for the past 500~ years.
I have to laugh at deluded libertarians calling for real capitalism, capitalism has nothing to do with production / consumption.
It is a game of concentration and nothing else.
The dogs may howl and the camels may die, yet the debt caravan moves on.
And is it any wonder
That the monkey's confused
He said Mama Mama
The President's a fool
Why do I have to keep reading
These technical manuals
And the joint chiefs of staff
And the brokers on Wall Street said
Don't make us laugh
You're smart kid
Time is linear
Memory's a stranger
History's for fools
Man is a tool in the hands
Of the great God Almighty
And they gave him command
Of a nuclear submarine
And sent him back in search of
The Garden of Eden
Can't you see
It all makes perfect sense
Expressed in dollars and cents,
Pounds, shillings and pence
Can't you see
It all makes perfect sense
Can't you see
It all makes perfect sense
Observe the real goods deficit between the UK and the EU.
It has doubled since 2011
Basic production / consumption loops in Europe are being sacrificed to feed into the UK black hole.
Austerity is the rationing process required to sustain the consumer war economy..
The Fed's on the Zimbabwe economics plan. Negative rates and insane printing.
Print and try and kill the US dollar to force people into stocks.
It just HAS to work. It just has to.
What a disaster.
Open a pawnshop and start collecting real wealth.
This is getting just plain ridiculous. The robo-traders were raging to the tune of 300 Dow....
Maybe that's when I try to mind meld with this market, I get nothing. Not fear. Not greed. Nothing.
Just the slow methodical machinations of machines masturbating each other.
All this talk of cheap Chinese imports shutting down the UK steel industry is nonsense
The bulk of UK steel imports come from Europe.
Europe is engaged in a manic bout of mercantalism.
This process of exporting your wealth subtracts from domestic consumption.
The function of production should in theory be consumption.
This is not the case under the finance capitalism model.
One of the key points made here is the inflation must be at least 2% annually point. For central bankers, if prices double in year 1, they still have to go up by at least 2% in year 2, otherwise there is widespread deflation that must be pushed against with more stimulus.
This is exactly the problem, because that is NOT what matters. What matters are how fast costs are inflating over long periods of time relative to wages. Housing, tuitions, healthcare have all risen way faster than wages over the long run and are now barely affordable. Government's solution - to subsidize these things even more - leads to even higher costs and precludes the pressure necessary to force providers of housing, education and healthcare to figure out ways to reduce costs. People are required to take on even more debt to fund these things because they are unaffordable.
Preventing markets from working their sometimes painful magic is preventing the healing.
Stocks sense hyperinflation and the death of money. In Weimar, the money 'price' of stocks ripped up as the value of money ripped down in sublime causative anti-correlation.
We're not there yet but when it comes it will be booo-tiful.
DAMMIT I DON'T FEEL WEALTHIER. FUCK YOU DRAGHI!!!!
Actually I'm making more in salary than I have ever before, but thanks to the crippling inflation over the past six years I am actually taking home less after expenses. Chief among them health insurance going from $300 a month to $750 for less coverage.
Uk goods deficit with EU 28, 2011- 2014
40 billion £
56 BILLION
68 billion
76 billion
Nicely written article. Have we reached full employment yet Mr. Yellen ?
DUCK and COVER
Get your hot money! Freshly printed, free, hot money... get it while it's hot!
Hot money here...what? Sorry, only for the privleged few and you're not one.
Get your hot money here...
Debt is just a number.
The coin of trade is breaking. Not the trade itself. Trading will still be happening but having good stuff to trade will be key. The pawnshop is where it could really be happening no matter what these clowns do to the coin. Trade will still be going on.
If honest Stockman is one dumb piece of shit.
In his defence I do not think he is honest.
He operates from a model of scarcity when there is none.
What is happening in Europe is a further transfer of purchasing power from individuals to the connected corporate sector,
We are seeing continued falls in the Irish residential energy consumption (family formation collapsing with subsequent outsourcing of reproduction)
With major increases in aviation fuel burn.
The data is very clear.
More then anything the carbon tax and anti coal measures is making it increasingly impossible to restart new families in Europe.
The bankers solution is to ship them in when families are fully formed thus reducing costs.
The problem is, the predators-DBA-banksters can create fiat, fake, fraud, fiction, fantasy, fractional-reserve debt-notes out of thin nothing without limit.
And so, if they continuously direct much of that flow into stocks, the stock indices will continue to rise... even as the entire world economy completely collapses. And in doing so, they can fleece the savings of every rational "investor" (if that term can apply to the absurdly manipulated fraud casino pretend "market" that exists today).
And indeed, this is a huge problem for "the good guys", and precisely what the predators-that-be intend. The problem being, "the good guys" are producers and savers, and precisely the ones who could "rebuild" after the disaster (because they know how).
However, a major part of the predator-that-be plan is to completely destroy these very people, who they see as their number one adversary and enemy. And so, the predators-that-be do everything to drain their resources.
One method is to manipulate the non-markets in such a way to fleece rational "bets" and "investments". For example, as endless obviously terrible economic numbers occur, the historically rational reaction is... short the stock market. And so, the predators-that-be manipulate the market higher, and thereby grab all those "rational bets/investments" from nominally rational players.
I say "nominally rational" because... truly rational players should have realized by now they are being targeted, and not participate in casinos they know are rigged against them.
Yes, someday the house of cards WILL come crashing down. That's part of the predator-that-be plan too. However, trying to get the timing right on bets is a losing proposition... get the timing wrong a few times and you're broke. Then the "good guys" have no savings to bet when the timing is finally right. Plus, they have no savings to rebuild after the collapse. Which is precisely what the predators-that-be want... complete worldwide destruction, followed by complete worldwide domination... by them. Where the "mass killoff/dieoff" occurs in this scenario is mostly irrelevant.
I suppose what is amazing to any outside observer is that 7 billion sentient beings will allow a few hundreds or few thousand human predators destroy virtually everything and everyone. But, that's what happens when belief in "authoritarianism" is virtually universal. How many humans even realize "authority" is inherently a fictional concept? How many realize how destructive that fiction is? Too few.
Yep. Keeping the ability to produce is very hard to do these days. They have taken most of the proffits out of doing buis.
Storing that ability for future production when it will pay off is a good bet I think. Low risk with real potential for a sound future. The real trick is keeping your wealth thru the coin collaps and beyond. To fix this system we are all going to need to go thru barter town. All values in barter town will be real and measurable. Set by the real market value.
'Central bankers death wish' - Mr. & Mrs. Guillotine are ready to make that wish a reality.
I'm not sure I see the pupose of reading or writing any more financial/economy articles. All one needs to know about is QE and ZIRP. And NIRP if in Europe. That's it.
I'm starting to think exactly the same.
It's not just 3:30pm. The whole thing is starting to look like one big ramp. We think we're on a staircase. We're on an escalator. We don't perceive it, because we are in the middle of it. Things on an escalator can jump up and down, die, decompose, all irrelevent to their moving progressively, steadily upward.
Hey everyone, the S&P 500 hit 2080 today because of the awesome mounting productivity, growing revenues, and burgeoning employment rosters of all the companies on it. Yeah, either that, or it's the f***ing escalator they are all standing on.
Watching what's happening on the "market" right now is like watching bad, cheap porn.
http://realmoney.thestreet.com/articles/10/22/2015/more-qe-would-be-reward-banks
More QE Would Be a Reward to Banks
By Roger Arnold
Oct 22, 2015 | 4:00 PM EDT
In the past few months, I've written several columns concerning the recessionary trajectory the U.S. is on and how the Fed would respond if that continues.
Although a recession is not yet inevitable, the preparation for how the Fed will respond, if required, has begun.
On the recession issue, the Chicago Fed National Activity Index (CFNAI) released this morning validates the recessionary trajectory with the opening remarks of:
"The Chicago Fed National Activity Index ticked down to -0.37 in September from -0.39 in August. Two of the four broad categories of indicators that make up the index decreased from August, and all four categories made nonpositive contributions to the index in September" (emphasis is mine).
On the monetary response issue, as I discussed earlier this week in the column, "When Bad News Is Exactly That -- Bad," the San Francisco Federal Reserve Bank has already indicated that a probable response by the FOMC will be negative short-end rates coupled with another round of quantitative easing (QE).
As I discussed in 2011, monetary and fiscal policy come in two basic forms, pull through and push through, which may also be considered reward and punishment.
In that context, the implementation of another round of QE may be considered the pull through; a reward provided to the banks for agreeing to accept the push-through punishment of negative short-end rates.
The first issue to deal with is the potential structure of what another round of QE would involve and when it would be supplied.
The last round of QE involved the purchase of agency mortgage-backed securities. The idea was to allow the Fed to purchase what had become illiquid mortgage securities from the banks in order to provide the banks the capital necessary to make new mortgage loans and in the process drive the mortgage rates down to stimulate consumer demand for home purchases.
As I've noted previously, that structure required approval by the U.S. Treasury, and the next round of QE will, too, because the Fed's mandate has not been expanded by Congress to allow it the opportunity to purchase other than Treasury securities without first getting approval from the Treasury secretary.
The next round of QE will likely require the Fed to go beyond mortgage securities and into purchasing other kinds of bank loans that will likely become illiquid as a result of the economic deterioration.
Those loans will likely be concentrated in autos, commercial real estate mortgages and commercial and industrial.
This, too, will require Treasury secretary approval.
However, it is also likely the Fed will use the potential for it to expand into those areas by requesting that the executive and legislative branches coordinate and supply a fiscal response this time that is complementary to the goals of the monetary efforts.
In addition to requiring the fiscal support, the Fed will require the banks to agree to accept negative short-end rates in order for a round of QE targeted at these other kinds of loans.
The next issue concerns the timing of the Fed moving forward with a round of QE structured this way.
Until the bankers agree to accept the negative short-end rates and the government agrees to provide a complementary fiscal response, the Fed will wait to implement the next round of QE, even if the Treasury secretary approves.
The executive and legislative branches won't have the political support necessary to coordinate and respond with a complementary fiscal stimulus package, however, until there's been enough of a deterioration in economic activity and capital markets to afford for such.
That's a normal part of the political process, though, as there is too much risk to the continued viability for re-election faced by individual legislators to warrant even attempting a pre-emptive fiscal stimulus measure.
A fiscal package is only politically viable as a reaction to economic and market events that have already caused the electorate to not only acquiesce to the necessity of it, but request it.
The most important part of this process for investors, as I wrote about earlier this week, is that the current expectation of a pre-emptive monetary response to market instability or weak economic reports indicating an imminent contraction in private-sector activity is imprudent.
The Fed is telegraphing its willingness to supply a monetary response as the legislative mandate requires, but the experience of the past seven years has also proved that a monetary response provided in the absence of complementary fiscal measures is not just inviable but actually counterproductive.
At this stage, the most likely catalyst for encouraging the required response by bankers and fiscal authorities will be a decline in oil prices, but it may instead first be evidenced by continuing deterioration in the biotechnology and technology sectors.
So basically WS gets more profits and welfare handouts and this time the US tax payers not only get nothing except a future tax bill, but they get stuff taken away in the form of austerity.
Awesome, it is great to be an American tax payer!!!!
FUCK WS with a rusty broom
It's written 'Wallstreet' all over the charts, no matter where you look, stock markets everywhere and all data in the (western) hemisphere has written 'Goldman' all over it.
What was the communists main problem, the plan-economy? Defining targets and reaching it by any means, no matter when underlying data and production doesn't fit with reality? I guess they haven't learned much from history.
Eat Drink & Merry
For tomorrow
we crash