This page has been archived and commenting is disabled.
Here Is The Complete Scenario In Which The Fed Hikes Rates, Starts A Recession, And Launches QE4
Seven years after the Fed unleashed ZIRP and QE to "fix the economy", it has finally admitted that ZIRP and QE failed to do that (although they certainly succeeded in blowing the biggest asset bubble ever), and for the past 6 months the Fed has engaged in what may be the most ridiculous case of revisionist history, as the narrative has been flipped on its head, and now the all too wise career economists of the Fed (with the help of a few good ex-Goldman bankers) are pitching the first rate hike in nearly a decade as the solution to all the economy's problems.
For now the equity market has played along with this grotesque flip-flop in monetary policy, first by rising two months ago on terrible job numbers which made the December rate hike less realistic, and then rising some more in the aftermath of the October "hawkish" Fed announcement and minutes, which in no uncertain terms warned a December rate hike is coming after all, poor economic data be damned.
To be sure, while stocks as usual remain stuck in their imaginary ivory tower where good news is great, and bad news is even greater, other assets have been far less enthusiastic. In fact, as we have shown repeatedly, the dramatic flattening of the yield curve (via the 2s30s) is now screaming policy error.
Yet if bonds foresee a major monetary policy "error" why do stocks remain oblivious? One attempt at an answer was provided by Goldman late last week when the firm suggested that the natural rate of the economy (to which the Fed will hike rates before re-easing) has declined and will remain lower for longer: in other words, the Fed's experiment has weakened the economy so much, its potential growth rate has been cut in half in the past decade.
To Goldman this was, as can be expected, bullish for stocks and bearish for bonds (ironically even as another part of Goldman is saying that the "Bernanke put" is now gone and has been replaced with the "Yellen call", which is why Goldman's 2016 year end target is an unchanged market).
Another, far more credible interpretation, comes from Deutsche Bank's Dominic Konstam.
According to the DB strategist, what the Fed is likely ignoring is that after decades of bubbles, the monetary excess aftermath of the great financial crisis has still not cleared, and that not only is the equilibrium real rate "lower for longer", it is in fact negative.
What this means is that the Fed, in its reflexive attempt to boost confidence in the economy - and the logic goes as follows: "look, we are raising rates, and we wouldn't be raising rates unless we thought the economy could handle it" (just please ignore the whole "subprime is contained" thing) - is not only engaging in massive policy error, but is about to unleash a recession which will promptly force it to cut rates again (to negative) and start another episode of QE.
Here is Deutsche, first laying out what the Fed economists think:
The real case for policy error - equilibrium short real rates may be below zero
There are two interpretations of the macroeconomic data that have vastly different implications for the effect of imminent rate hikes. The first is the “conventional” view, which the Fed subscribes to. This view posits that the short-term real equilibrium rate is around zero. Since the nominal Funds rate is at the zero lower bound, policy is accommodative, and this is why the labor market has improved rapidly. Inflation has not picked up because it as a lagging indicator. However, some form of a Phillips Curve relationship does exist, and so inflation will eventually reach the Fed’s 2 percent target. As per this view, if inflation rises and nominal growth also rises then the equilibrium nominal rate will rise. Even if the equilibrium real rate does not change, the Fed might at least be able to get to the market’s view of the terminal rate – slightly below 2 ½ percent – without inflicting serious damage on the economy. If the equilibrium real rate does rise, all the better – the markets would move to the Fed’s dots, and the terminal rate would be around the Fed’s target of 3 ½ percent.
How to determine if the equilibrium rate is negative? Just look at the debt, stupid:
The alternative view is more worrying. In this view, the equilibrium nominal rate is at present much lower than the Fed thinks and the equilibrium real rate is meaningfully negative. Policy at present is not very accommodative, and to the extent that it is, inflation is actually running above its equilibrium level, which is close to 1 percent. One might argue for low “implied” equilibrium short rates via debt ratios. For example, if nominal growth is 3 percent and the debt GDP ratio is 300 percent, the implied equilibrium nominal rates is around 1 percent. This is because at 1% rates, 100% of GDP growth is necessary to service interest costs.
Which goes back to our fundamental thesis from day 1: there is simply too much debt, and while unconventional policy merely increases the debt, the interest rate shock from a rate hike will crash the economy: hence, the Fed is trapped.
In this case, real growth would slow in response to rate hikes because productivity would stay weak at full employment and companies would be profit/price constrained around paying higher wages. Moreover, nominal growth would then slow even more than real growth does because inflation would fall to 1 percent or below.
But... a 25 bps rate hike is tiny: surely the economy can handle it? Actually, if the equilibrium rate is negative, it can't.
This is the important policy error scenario because even a very shallow path of rate hikes might drive the real Funds rate well above the short-term equilibrium real rate, further depressing demand. It is then plausible that the economy would be driven into recession, and the Fed would quickly be forced to abort the hiking cycle. As an aside, such a policy error could reinforce itself by causing structural damage that puts additional downward pressure on the equilibrium real rate. In this case the yield curve would flatten meaningfully, at least until the Fed actually reversed course by cutting rates.
Finally, this is critical because just like Japan in 2000, and all other central banks during the New Normal, who raised rates only to lower them immediately after, the Fed is about to unleash not only a policy mistake, but to do precisely the one thing that will force it to not only cut rates, perhaps to negative, while doing even more QE.
This scenario is also bullish for rates because the Fed would, at the very least, stop rolling down its SOMA portfolio. More likely it would restart asset purchases in an attempt to stimulate the economy once more, pushing yields further down. We have argued in the past that unconventional forms of monetary accommodation are here to stay. The minutes of the October meeting confirm this view, noting that some policymakers felt it would be “prudent to have additional policy tools” because a lower long-run equilibrium real rate makes it more likely that reductions in the Funds rate alone would not be sufficient to stimulate the economy in the event of a downturn in the future.
Whether this error will crush what little credibility the Fed has and be its final error, either policy or communication, will be revealed in the very near future.
Good luck Janet.
»
- 1942 reads
- Printer-friendly version
- Send to friend
- advertisements -
"i wonder, when are American men going to grow a backbone? sigh"
The question is "if" not "when". There are no examples left.
With the founders slave owners, men like Andrew Jackson, Lewis and Clark, racist warmongers stealing land from the innocent natives, John Wayne a chauvinist, etc the education system via government has made bad every male image that used to be good. With ridiculous male spread, ogling, now actually illegal, the media worshiping homosexuals (notice most homosexuals on TeeVee are male) and making men appear from foolish to retarded on Teevee that "if" is very small indeed.
jmo
how true rejected....
blackLIESdon'tmatter and liberalism is a disease...time to stand up like men who have a couple of brass balls, fuck all the rest of the weenies...i think the day will come when some wake up, but it will take a lot to do it.
most people are brainwashed these days, the propoganda is thick.
you know the most ironic this is this:
the people on this site dont even realize we are on the same side, and redicule me for pointing out the damn generalizations about jooooos and americans. they are too brain dead to see it...fucking idiots!
edit: i wonder how many people know that the central cherokee nation has 3% jewish blood in them, and they were isolated from most of the interactions/integration of europeans here. man the ignorance is palpable.
i am not Jewish, but i cant stand it when idiots spew their generalizations here...uneducated fools is all they are.
hasbara hasbara...go play with your fucking ken dolls swivel heads!
"i wonder how many people know that the central cherokee nation has 3% jewish blood in them, and they were isolated from most of the interactions/integration of europeans here."
Are you fucking serious, you're reaching THAT far? Come on man. You're going off the deep end. I've had my autosomal SNP test, and you're simply just wrong.
The fed is holding off the disaster until the first black president is out of office. If it can.
Yep, having a couple of females to take the blame will allow them to cause a much deeper division in society, to assist in their conquest of what remains...
The FED hikes, the PPT buys the market so that Ma & Pa Kettle think all is well regardless of the gloom and doomers on CNBC and Bloomberg, then there's a false flag of decent sized proportions and the market tanks 20%+ (which will all be blamed on the terrorists when everything washes out) after which the FED will propose QE whatever to get the economy back on track after this "unforeseen event". Wash, rinse, repeat. This has all happened (in some form) before and it will all happen again! [Leoben was one smart bot]
It will be def more than 20, more like 60+%
No worries. Whatever happens the Fed's plunge protection team will step in and buy stocks like they have been doing. What's to stop them??
Why do you think Janet Yellen is terrified of an audit??
As far as the fed is concerned, it's all free money. So why care what needs to happen to keep the shit show going? The taxpayers will be forced to cover all their losses. Last christmas when the Republican majority were voted in, the first thing they did was give them a blank check to cover their derivative losses. Obama signed it.
Wall St. hasn't cashed that check....yet.
Get a job over in Greece fingerprinting and photographing the MiddleEast refugees.Sunbath on the topless beach.
I'm waiting for someone to say "Obama is doing a good job on the economy". You know, just to round out the sheeple idiocy.
"...is not only engaging in massive policy error, but is about to unleash a recession which will promptly force it to cut rates again (to negative) and start another episode of QE."
Why do you keep calling it an error if the Fed wants to move into NIRP so as to ban cash?
This is not an error, it is policy.
The key to understanding this article is understanding what is meant by "negative equilibrium rates".
The article doesnt explain this.
So what does it mean?
On the surface one would think it means potential lenders are willing to sacrifice a portion of their principle to save the rest.
But how could that happen????
It happens when the redistributionist economy overwhelms the real economy...when the parasite kills the host.
Government is at best a necessary evil, at worst a wholly desructive parasite. Fractional Reserve banking is wholly parasitic. Fiat currency is wholly parasitic, and exists for the sole exlcusive purpose of enabling the prior two parasites, by way of anestheizing the host the the volume and depth of his wounds.
When the host economy begins to die, they become unable to meet the costs of continued operations. Their loans default...and must be written off entirely. In doing so, because every loan creates a lesser amount of currency, currency gets written off with the debt it was based on.
This wipes out the parasites. Less real economy means smaller feeding for them. A defaulted economy leaves most of them with defaulted paper assets worth nothing.
Understanding this, they are willing to give real economy players negative rates on consolidation loans... It is a collapse in slow motion...in theory.
There's your negative real rates.
In fact, this scenario will fail at the government treasury level ...the base currency CANNOT have a negative rate. The collapse of bank credit will render treasury debt untenable (it is BY DEFINITION UNPAYABLE already). Negative rates will turn the Treasury into the world's largest interest rate arbitrage casino...leading to a cycle of deepening negative rates and eventually...government fiscal collapse.
Or they could raise rates and collapse.
Or they could raise rates, thens sharply reverse course to print money... and then collapse.
Or they could establish counter-party-free asset backing for the currency, allow bank credit to collapse...and then have a new healthy economy within 36 months.
C'mon now, who doesn't love "negative equilibrium rates?"
Of course, without the idiocy of using IOUs as a standard of measure. let alone circulating as a fiat currency, none of this could ever happened.
Healthy economies require net energy and that's going, going.... As the 21st century unfolds, fossil fuels won't do it. Nuclear may help, but the roads and bridges still have to be repaired. Homes still have to be heated. Debt jubilee might achieve some justice, though.
the fed was behind the curve on the housing and stock market bubble in 2007 and they are behind the curve on the stock market bubble now. here's the problem this time. they left rates low for so long that they caused an oil glut and commodity crash. the stock market will crash eventually whether they raise rates or not. the best thing the fed could do is just die. the only people they ever help are bankers and billionaires so just die already bitchez and leave wealth allocation and money creation to the corrupt congress.
"the best thing the fed could do is just die"
Reminds me of when they asked Jimmy Rogers: "well what would you do if you were in charge of the FED?"
Without missing a beat he says: "easy, abolish it and resign".
All these aricles on ZH talk about what the FED's doing and stating its wrong. I have not seen one article where someone actually says what the FED should be doing and how it would save the economy and currency or is it the case that whatevery they do will be criticised and nothing will help?
the best thing the fed could do is just die.
100% agree, up tick, but they are here
Agreed. As you are no doubt aware, the Fed is nothing more than an agency for the global banking mafia, aka the Rotschild cabal, aka the Illimunati (which in Russian means "evil retards").
The IMF and the ECB are just other branches of the same rotten illusion. And the center of it all is the Bank for International Settlements... another illusion... they have no money either. And finally the Vatican, the darkest of the bunch and the money laundering capital of the entire Solar System. That's why they are a country within a country and account to nobody. If you are a Game of Thrones fan, the Iron Bank represents the Vatican (again, members of the "evil retards" family).
There is no way these monsters will leave this planet without wrecking it first. Well they have already wrecked it, but I mean they would rather kill all of humanity rather than give up their control over... all of humanity. See what I mean? They are so stupid and drunk with greed that they have created a global Pandora's box that they think they can keep a lid on. They can't. The mathematics of their own greedy scheme dictates that the entire empire has no option but to come crashing down. They will ignite yet another World War in order to create the excuse for the collapse that's coming... but it's coming nonetheless and only after the dust settles will the world know whether these filthy satanic cunts have won or lost. Right now they don't know either. And one thing is certain, they are scared shitless.
Bottom line is that unless they buy up all the gold, they will have lost. And that would be the dawning of a glorious new age for mankind... a world without central bankers. Without them, the world would still have a banking system. But it would be a banking system owned by the governments of each country, not by a den of a few families of demonic control freaks. A national banking system, complete with all the bells and whistles, owned and operated by the government of that country (the people) would work just fine, just like a huge credit union. As long as the Rotschilds of the world vanish in the next collapse, humanity will emerge out the other side of this current Kondratiev cycle into a much greater place. Imagine that, a world with no more wars. Here's hoping the great reckoning wipes them off the face of the earth.
Well explained - thanks. It's a shame that collapse is the only option and that means change then.
Check out my history - RMolineaux.
It is my analysis that Zero is incorrect in the analysis that they are proffering. Rates have been so low for so long that the market has taken over rate setting. What Zero is saying is that the equivelent of OPEC trying to set a price oil prices curently. One can only do this when you can control or manage the supply and clearly the supply of liquidity is huge out in the marketplace. If the Fed really wanted to do something they would begin to reduce supply by selling some of the assets that they have on their balance sheet or buying in liquidity. This proposed rate hike will have no effect other than a market effect that things are great. Cash is a commidity in the current market put there on purpose to flood the market and to try to create some inflation. Unfortunately the excess cash at 0% cost and 0% risk is creating a huge supply problem doing the opposie and driving deflation and not inflation, but the Central Banks never figured this out. The real mess is going to be the debt defaults and bankruptcies that will show up in the future. If you read Zero always do the opposite of what they say.
You should be doomsday prepping! Put that in your pipe and smoke it.
"INTERCEPTED !" -- Barry O., Choom Squad
FED has over 1 Trillion in MBSs that are for shit. Who would be the buyer when the banksters sold in the first place?
We don't really know what the Fed has and what it's worth, a trillion worth of MBS "that are for shit" may still be worth half a trillion, and if you don't want it I'll take it. The Fed had to buy them because they were *temporarily* marked down even further when there was a technical market collapse for just two weeks in 2008. Odds are they would be worth rather more now, maybe three-quarters of a trillion after the real estate market recovered and properties were foreclosed and sold.
The Greenspan put ain't got nothing on the Obama putt.
I'm beginning to get the stench of dead rotting vampire bats emanating from that bitch now and its definately a lot stronger than the stink of dead rotting fish it's replacing coming from that haggard old cunt
"We have argued in the past that unconventional forms of monetary accommodation are here to stay"
If one lived in a bubble where the United States is the center of the galaxy and everything else revolves around it, then perhaps, yes. It isn't. Unconventional monetary accommodation policies are Not here to stay. Quite the contrary. If that weren't the case, the United States wouldn't be screwing around in the Ukraine, Syria, nor the South China sea, risking provocation of events that could spiral out of control in mere days. Neither would China be holding (who knows how much) physical gold in their possession, for reasons not yet fully understood, but certainly NOT positive for the U.S. as global economic and military hegemon.
If money isn't tightened up, this sucker could go down.
What no one is talking about is the effect a rate rise would have on the dollar. It looks like Draghi ("Whatever it takes") is about to lower rates deeper into negative territory. If Yellen raises rates here, big money is going to leave Europe for the US. Up goes the dollar, down go US corporate profits, and welcome to undeniable, full-boogey recession.
At that point, the infallablility of the Fed is a fairy tale no one believes in any more.
My grandmother had that same blank stare in the height of her dementia.
Read "Shut Down" and you'll see what happens right after QE4
if she werent a reptile, she would be a parrot...just look at that beak will ya!
the illegal fed is their own worst enemy...and my enemy...fuck the banksters, i'm your huckleberry!
I love ZH. Not sure how or why, I do though.
Telling the truth is fun. Confirmation however can at times be elusive. The Matrix of reality is so astonishingly more complex and 'untamable' (monitizeable??) than the powers and principalities realize.
Satan plays chess.
God is the game.
He made it. Created it. Is the author of all that is perceivable to us. Some perceive more than others.
Some less.
Most differently than would be a natural rate absent the EFC (Elitist False Construct) provable beyond an end of debate. ZH is magnificant, in my opinion. For that reason alone..even..I'm suspicious of it.
Kick your ass video link here.
http://www.activistpost.com/2015/11/graham-hancock-randall-carlson-on-al...
"In fact, as we have shown repeatedly, the dramatic flattening of the yield curve (via the 2s30s) is now screaming policy error."
The FED has been one long policy error.
"long policy error" got me thinking... Do you know where to buy a derivative that goes long on policy error ?
"Whether this error will crush what little credibility the Fed has and be its final error, either policy or communication, will be revealed in the very near future."
7 years of ZIRP. The FED rate never rose during what was billed as an economic expansion. The error isn't now.
The fed's job is not economic expansion, stablizing the economy or the welfare of joe sixpack. Their job is to transfer wealth from the sheeple to it's (secret) owners. No Audit, no scrutiny or any transparency. Even the mighty US military can't touch these guys. All this talk of whether they should raise rates or not is just a smokescreen. At the end of the day, they'll do what it takes for the next trillion dollar transfer from the tax paying shmucks to it's (owner) member bank asswipes.
We've been hostage to these a$$holes for the past 100 years.
"...The Fed Hikes Rates, Starts A Recession..."
Various charts indicate we are in or on the verge of a recession, without the FED having raised rates.
I don't think the FED needs to raise rates, for a recession to start.
Did the last recession/depression ever end? The employment numbers certainly would say otherwise.
Really good article - along of course - with ZH follow-up commentary and critiques wherre articles such as these would be dead without them. Sometimes without these guys I can't figure shit out (especially this piece) - so hats off to the ZH crowds check, balances and summaries. For what its worth, I think there is something to the natural rate thesis, if only because rate suppression has destroyed price discovery and innovation so bad for so long (see Lucas et al), that now the real growth rate of the economy cannot possibly handle (accommodate) a rate hike. Putting it another way, rate suppression and asset price inflation has destroyed demand (see CRB, WTIC, BDI, etc.,), to the extent that the real economy has been reduced to a structurally broken equilibrium that will take years to repair - such that ANY nominal rate increase will flatten the yield curve even more - a contango in rates.
I have no idea what that means for stocks et al assets because when you have the PPT engaging in POMO everyday - what does it matter. Accordingly, it seems to me that the real economy will simply continue to wallow in its own shit so long as the debt overhang continues, where no real savings underpins investment, but, simply the FED buying the market.
And to this end, I would proffer simply this: trade nimbly and keep stacking.
I am open to down arrows - ZH education is good. :)
Up arrow for no particular reason other than you admit to having no idea about stock perfomance. You are too honest to be stooge.
There's really no need of Mr. Yellen closeup shots.
Would you prefer upskirt shots?
Be happy for what is given.
Sorry for the unbearable mental image, but, as suggested earlier in this thread, these are the good times.
Enjoy!
>Yet if bonds foresee a major monetary policy "error"
>why do stocks remain oblivious
Because this was all done for the benefit of the stock market, and it kind of worked, the stock market recovered quickly, by about 2011, to an equilibrium state, even if it was held there by manipulation - real equilibrium is impossible while ZIRP and QE are still active.
The HOPE is that we can now remove the ZIRP training wheels and the stock marked can peddle on more or less intact. Bond prices are gonna suffer, but if you didn't see that coming what can I say.
The Fed has to raise rates soon in order for the democratic meme of continued economic recovery to continue. Hildabeast MUST tout economic recovery INCLUDING the required rate hike signaling all is fine with the world so vote for me. A massive QE4 will be unleashed as we approach the final year of presidential bullshit on the dem side that will cover all loses, and of course monkey hammer gold. Everyone who votes will get something for free by way of bread and circus except the middle class which will continue to suffer. Well the middle class will continue to get a nice fake southern drawl form the beast as she vomits forth her propaganda, so it's not all bad.
I think that if the FED raises interest rates, it will already have installed a stealth QE4 mechanism, because it doesn't want to needlessly roil the markets by raising interest rates first, then have to rescue the markets with a followup QE4.
So the question is, has anyone sniffed out a stealth, pre positioned QE4 yet?
Jim Willie? What do you say?
total bullshit, if .25% breaks the economy, then the economy is dead anyway.
Well, you know how it is. They have to keep up appearances. If it all goes bad, they get to claim they "tried everything". Karl Marx forbid they get accused of not raising rates when they said they were raising rates.
The economy is on life support - Been dead for at least 10 years - The FED has lent trillions of 'created' money to foreign banks and there is NO demand for USTB's - If you had invested in companies like 'Lockheed Martin' you would have enjoyed 12% returns since 2001 - The US murderous Foreign Policy has doubled the amount of Billionaires since the FAKE GFC - No murder = No money. ISIS manufactured terrorism is about to explode - Russia's campaign has been far too successful for TPTB - They are going to send a clear message now proposing that ISIS is now 'Running Rampant and that Russia's contribution has been totally ineffective - This is the Zionist Bankers last roll of the dice and it won't be PRETTY ! Jim Willie claims that the FED is still printing a Trillion per MONTH - He says evidence of this can be found on the Fed's website if you look closely - I,myself have been too afraid to LOOK !
Which I strongly agree. Derivatives are the elephant in the room that nobody dares discuss, much less have to clean up after. This doesn't mean the dollar itself won't continue to rally, as the USD is in awesome demand just to settle what derivatives they CAN settle. These paper contracts are generally denominated in the Yankee Dollar. It won't take much more than Yellin blasting a queef (fanny fart) to trigger a derivatives breakdown far worse than '08.
There is an interview linked through the Golden Jackass website where I believe he addressed that point or similar. Because he goes on and on, it takes a while to find the spot on the public interviews he gives.
Most Americans will feel the pain for not adjusting their lifestyles. Will be fun watching people lose homes and jobs.
The Fed will leave rates alone as that's what's best for the bankers. It'll slowly drain the economy of any life as it has been doing till the politicians are forced to turn on the bankers and then the Fed as none of this can be possibly be your elected representatives' fault. That's when rates will rise OR the bond market collapses with no buyers of debt. There may be a correlation between people wising up and bids disappearing. Don't worry though, MyRA's will be the savior of the bid and penalties for moving your Mutual Fund account into cash.
The Fed are just thieves. Guess what their plan is.
What should be done about it?
Point. They'd better be careful. They might make everything they stole worthless.
However, it might FINALLY put the TBTF "in their place" as we say down South.
The markets expect a raise. She will accommodate. Only a token jesture, to jump in front of the already committed crowd to pretend to lead.
This is indulgence in Paranoia to say the least, somebody needs a few couch sessions.
As for Stealth QE, it's already going on in subprime auto and house lending, entitlement programs and defense spending.
The Fed will continue to "Print" whatever the Congress and GSE's spend, until the dollar is roasted.
Ten grand in helicoptor money to each taxpayer right before Christmas would be a noble gesture.
Bernanke realized the mess he made and left as soon as he could.
Upvoted! Not only is that true, I've preached months ago here and on Yahoo forums that Yellin will be YELLIN loudly! She's not reached crecendo, but the shit will hit the fan on her watch. No longer dovish, her inner bitch is showing well when she demands a laizzez-faire approach from any outsiders.
A nice start would be a Constitutional Amendment forbidding Congress from ever, ever, EVER AGAIN delegating their monetary authority to a more vile, disgusting group of inbred scum as these TBTF banks are generally composed of. They're Federal as Federal Express, yet their website has a dot gov on it? I confirmed that myself and suspect a much more grand screw job on the way.
WTF?
There are two interpretations of the macroeconomic data that have vastly different implications for the effect of imminent rate hikes. The first is the “conventional” view, which the Fed subscribes to. This view posits that the short-term real equilibrium rate is around zero. Since the nominal Funds rate is at the zero lower bound, policy is accommodative, and this is why the labor market has improved rapidly. rotflmfao
The labor participation rate is at 40 year lows .
There is nothing stopping them from raising rates AND doing QE4
By doing that on a global scale they can be sure who the last man standing will be.
The big printing was intended for the most most rich.
That's why there is no recovery. Many people in LA are worse than in 2014.
The economy is going down. They should let the capitalist free market economy sort out all wrongs and then move up again. Right now it is all fake "orgasm".
Caption for Yellins picture - MacroPrudential meets MicroPrudential.
Other ideas?
Animate a growing moustache onto the pic.
Instead of a growing nose ? But in polite company we must of course not rudely state the obvious...
ETA on the next collapse. Isn't there like a pool on when it will happen? December, January, February, March ..
Once again, I have to take issue with Tyler's relentless criticism of the Fed, while disregarding the true causes of our current monetary difficulties. At no time did the Fed encourage speculators in the dot.com boom of the late 90's nor the mortgage securitization boom of the eary 00's. These were decisions of bankers and speculators in the private sector who were gluttonous for short term gain at any cost. The Fed did not securitize trash mortgages, and with the collusion of the rating agencies sold them as triple A. And then to dig themselves deeper into their own slime, the bankers proceeded to short sell their own securitizations. These activities are now well known, and yet no one has gone to jail. The Fed's principal failure has been regulatory failure - prompted by the personal ideologies of its leadership. Wall street has siphoned off so much of the economic proceeds that there is little left for productive effort and investment in real wealth producing activities.
An increase of 0.25 percent in the base rate can hardly be called "tightening" when there are immense excess reserves available to commercial banks. What is needed is for the commercial banks to stop crap-shooting in the markets and facilitating buy-backs and start doing their assigned job of intermediation for capital investment. The Fed now has a variety of tools to influence interest rates, and can use any or all of them. It does not need to restrict itself to its traditional participation in the short term treasury market. It can even scrape the rust off its oldest tool - the level of required reserves, as it did in the late thirties and during the war years. A flattening of the yield curve in treasuries would be disruptive only to those bankers who have built an enormous pile of interest rate derivatives. These are mostly the big five banks. Let them hoist themselves on their own petard.
The government should not have it's own printing press. The Fed supports that printing press. Theft of my labor occurs via the printing press (credit or however it's implemented in practice). No and No to the courtesy of No Thank You.
take issue all you want, you are flat out wrong - they pushed liar loans, they caused the real estate bubble, pushed on by the corrupt govt, they dropped rates to 0, need i go on...i will...then they unleashed QE - cash for clunkers, etc...so the ILLEGAL FED caused the whole deal, even bought bogus MBS...so take your lies somewhere else pal
The BEST CASE SCENARIO is that the fed causes such a horrific disaster that the fed is terminated by the government in a desperate act of attempted self-preservation.
Of course, the predators-that-be will attempt to install some scheme that is even more corrupt... BUT... China and Russia have loaded up with gold, and would likely destroy that possibility by releasing some kind of alternate gold-backed currency. Given the choice between yet another obvious fiat scam and a reality-backed alternative, much of the world will blow off the new fiat scam and adopt the new gold-backed currency.
If China and Russia are SERIOUSLY WISE and denominate the new gold-backed currency in "grams of 99.99% gold" with no national name attached (like Ruble, Yuan, etc), EVERYONE would eventually adopt that new universal reality-currency. Of course the currency would have to be freely redeemable for physical gold (though probably not in smaller quantities than 1000 grams).
This would be a MONUMENTAL game-changer for many reasons.
Examples: This would completely eliminate ALL currency exchange expenses. Everyone everywhere on the planet could trade directly with no need for currency conversion. Everyone would immediately understand all prices, because everyone would become completely used to thinking of prices in terms of "gold-grams". And NOBODY would be able to manipulate the world system for their advantage (at least not very much), because anyone who tried to create more currency than they had physical gold to back the currency would suffer mass redemption.
To make this scheme totally bullet-proof, all issuers of currency would have to submit to international audits of the physical gold that backs up all the gold-backed currency they issue. And the currency would need to have unique serial numbers that correspond with serial numbers on the gold.
Of course the best case scenario is for everyone to eliminate paper currency and start buying and selling with physical gold [and silver] coins/rounds.
Either scheme is 100% compatible with people having conventional checks, debit-cards and credit-cards. So convenience is not lost. What would be lost is the ability to track every transaction, because some people would buy and sell with physical gold and silver, which has no electronic element, no counter-parties and no risk of scams.
The corruption has gotten so utterly over-the-top, some massive change is necessary, and hopefully (and quite possibly) China, Russia and others are ready to offer a replacement for the current fiat scam.
Which is probably why the USSA and allies are increasingly trying to turn Russia and China in mortal enemies in recent PR.
-----
PS: The real economy would become much more healthy if interest rates rose to somewhere between 5% and 12%. Yes, this would trash (and hopefully destroy) the large financial institutions, but that must happen for the real economy to heal. Investment in real productive enterprises must come from savers (being paid interest well above actual inflation), not hyper-leveraged fiat perversions in the hands of human predators.
Some interesting ideas. Let me suggest some difficulties:
The money supply would be fixed and limited by the amount of gold and silver mined and recovered from scrap. Unless, of course, those issuing the "currency" might issue more currency than was fully backed by gold and silver. This was the origin of fractional reserve currency in the first place.
The issuers would have to be tightly audited and identified as you suggest. Would the new currency have a name, and would the value of gold and silver be allowed to fluctuate in terms of the new currency? Who would be allowed to issue the new currency, and who would be authorized to audit it?
How would the existing debt and money denominated in existing currencies be paid off in the new currencies, or, alternatively, would all existing money and debt be zeroed out. Obviously, the latter could only occur as the result of a complete collapse.
The new currency should NOT have a name... other than "gold-grams" and/or "silver-grams". That makes everyone understand they are not supporting or depending-on any one nation. In fact, there's no reason whatsoever that corporations or organizations or even individuals could not create their own "gold-gram" certificates... as long as they subject themselves to the same international auditing program.
One of the huge BENEFITS of this scheme is that the money supply is "fixed" (though as you note, it isn't really fixed, but grows at roughly the same rate as the human population due to mining).
Whatever THEORETICAL advantages might exist in allowing some human predators to expand and/or shrink their money supply, is ASTRONOMICALLY outweighed by the advantages of not letting any individual or fictitious entity (government, corporation, NGO, etc) manipulate the system for their own benefit (which ALWAYS happens and ALWAYS is enormous in magnitude).
Also, for similar reasons, it is absolutely imperative the system does not include ANY form of fractional reserve practices whatsoever. There must be a 1:1 correspondence between grams of physical in storage and "gold-gram certificates" or "gold-gram units" in checking and saving accounts. Otherwise, human predators ALWAYS fund endless wars and other physical and financial atrocities by manipulating the system.
I would not want there to be ANY scheme to make the old system and new system correspond. When (say Russia, China, India, Iran, etc) start the new "gold-gram" system... NOBODY is required to adopt their system.
To coin a gross phrase... if you want your fiat, fake, fraud, fiction, fantasy, fractional-reserve debt-note paper or bits, you can keep your fiat, fake, fraud, fiction, fantasy, fractional-reserve debt-note paper or bits.
What I expect would happen is this. Pretty much every honest, ethical, productive, benevolent human being on the planet would convert their fiat, fake, fraud, fiction, fantasy, fractional-reserve debt-note paper and bits to gold and/or silver coins/rounds. They'd take some [perhaps large] portion and deposit in a "gold-gram bank" where their accounts would be exclusively denominated in "gold-grams", and also perhaps get some redeemable "gold-gram" paper notes to spend like cash is spent now... though personally I prefer to carry around gold and silver coins/rounds.
Anyone stupid enough to want to stay with the fiat, fake, fraud, fiction, fantasy, fractional-reserve debt-note paper or bit system would be entirely free to do so, and would be subject to bail-ins, monetary inflation and endless manipulation by endless predators-that-be.
As far as "existing debt", I would say that gets resolved in whatever existing fiat the contract specified (USD, Euros, Japanese Yen, etc). If someone wants to convert back and forth between the "old fiat" system and the "new gold-gram" system, I'm certain hundreds of entities will offer conversion services to make that easy.
I think anyone can issue the new gold-gram currency, but it would only be worthwhile for individuals, businesses or governments who do substantial scale business. I would say the "audit" would probably be done by a random rotating group partly composed of those who issue the new gold-gram currency AND others with no financial or other interest.
Mostly this audit would need to test for "fake-gold", plus verify the serial-numbers on the gold correspond to the serial-numbers on the "gold-gram" currency.
Given current technology, whoever issues this new gold-gram currency would have a video camera moving past all the bars of gold to display them and their serial-numbers constantly on their website (every gold bar appearing at least once per day). And the website would contain a list of serial-numbers too.
This way, any individual or business that receives gold-gram currency could immediately confirm the serial-number was valid. Furthermore, they could voluntarily log "we just received these serial-number" and "we just handed out these serial-numbers" to make sure multiple pieces of currency do not have the same serial-number (a form of fractional-reserve AKA counterfeiting). Note that this consistency check DOES NOT require you identify yourself... the mere fact that two entities claim to have the same serial-number at the same time is proof that SOMEONE is cheating. Only when that happens would there be any need to dig deeper to figure out what happened and who is involved... which any honest holder would definitely want.
Note that gold-gram units in a gold-gram bank would also have serial-numbers consistent with the gold-gram currency. Thus your checking and savings accounts would essentially be a list of gold-gram serial-numbers.
Note that the first 8~16 digits of the serial-number would be the issuer (similar to credit cards now), the next 16~32 digits would be the 1000 gram bar of physical gold held by the issuer, and the final 8~16 digits would be starting and ending micrograms of that 1000 gram bar (assuming one microgram of gold is the smallest unit supported). Or something roughly like this.
Anyway, the above is off the top of my head, so I'm sure slightly easier and more streamlined methods can be developed.
Note that anyone concerned issuers might violate their privacy in some way, anyone can buy and sell with n-gram gold [and silver] coins. This would function just like cash does today, except free of any corporate/government manipulation... yet 100% compatible with gold-gram currency certificates and/or gold-gram bank accounts.
A few notes about the gold-gram and silver-gram paper currency. They can be issued by anyone willing to adhere to the standard and audits. The standard would specify the exact size, thickness and material the paper currency is made of (might not actually be [pure] paper). The standard would specify where the denomination is printed, and exactly specify the nature, encoding and location of the machine-readable bar-codes (or equivalent) that specifies serial-number, quantity in [micro]-grams, etc.
However, much would be open to creativity. For example, the background image/photo could be just about anything that doesn't obscure the printed denomination and machine-readable bar-code. So issuers would probably create endless beautiful background designs, background works of art, background photos of nature, famous places, famous (and infamous) people, and so forth. Thus "money" would become visually fascinating. Personally I'd prefer the background not contain anything that could be considered advertising, but... well... who am I to insist? However, I wouldn't make the definition so restrictive that it would exclude movie characters like C3PO, R2D2, Darth Vader, famous sports figures, and so forth. In fact, I'm sure many issuers would create the equivalent of "baseball cards" with large series of imagines that people collect (probably with low denominations, maybe even trivial denominations like 1 micro-gram). Like old coins, old gold-gram currency might become more valuable than the denomination someday. Who knows? The more I think of the possibilities, the more I like the idea! :-)
The New Development Bank (the BRICS bank) will be issuing a 100% gold backed electronic currency, but exclusively for use by members to settle international payments. It will not be directly available to any individuals/businesses in the member countries or outside. Effectively all international payments involving the members will happen in gold. Their own national currencies will be pegged to or floated against the NDB's currency and hence gold, but their national currencies will not be freely exchangeable for gold. Even if the members accept non-member currencies (like USD, EUR) for their exports, they will, after the launch of this currency, immediately convert their foreign currency receipts into gold by buying physical gold available in that currency. In other words, any trade deficits other countries run with the bloc will immediately cause equivalent gold to be drained out. Within the member countries, trade deficits of some will be financed by loans/investments from those running trade surpluses. Essentially all external savings/loans of the NDB's members will be denominated in gold. Since the founding group of countries of the NDB is a net exporter, NDB will accumulate gold. Price of gold in the NDB member countries' currencies will be held steady, while it will start shooting up in the currencies of countries that run a deficit with the BRICS group, most notably the USD. This will cause most countries exporting to the BRICS but hithero accepting other countries/regions currencies as payment, like the ME oil exporters, will first start accepting and later start demanding payment in the NDB's currency, not just from the NDB member countries, but others as well. That will be the end of the use of national/regional currencies in international trade/payments.
A very interesting proposal. Can you cite any documentation that would further describe this plan? It appears to bear some resemblance to the modified gold settlement system that operated from 1944 to 1971 as a result of the Bretton Woods conference.
They will fuck up and seize our money.
Just another reason to stock up during BLACK FRIDAY GUN AND AMMO SALES!
That is one sick looking bitch, has she been fucking the same whores as Charlie Sheen?
Long before the Fed rate rise causes recession (two consecutive quarters of negative growth), it will cause a banking crash because of the interest rate derivatives which will lead to bail-ins and a depression. Fed can't be blamed for causing it since all these derivatives are off the books and there is no way the could (officially) have known about them. When businesses' working capital is confiscated in the bail-in and they are given bank shares in lieu of their deposits and many fold leading to huge increase in official unemployment numbers, it is not monetary policy that will help, but fiscal policy. Watch out for massive increase in government spending via the Trillion Dollar (face value) Platinum Coin route.