The Fed consistently managed the Fed Funds rates to keep oil prices steady, even when it required mid-teens interest rates and back-to-back recessions in 1980-1982. Since US Fed Funds rates were managed to preserve US creditors’ and oil exporters’ purchasing power in oil terms, the system proved acceptable to most nations. While the Petrodollar arrangement worked well for nearly thirty years, the arrangement began to wobble beginning around 2002-04...
Is the US dollar really strong now? We explain why your measuring stick can massively distort your perception away from the reality of facts and truth.
Why The Collapse Of Abenomics Is Important: It's A Large-Scale Failure Of Keynesian Stimulus In Real TimeSubmitted by Tyler Durden on 09/14/2014 21:07 -0400
We have frequently discussed the nonsensical attempt by Japanese prime minister Shinzo Abe and BoJ governor Haruhiko Kuroda to print and spend Japan back to prosperity. By now it is well known that devaluing the yen has not achieved the desired effect, but rather the opposite. Not only have exports not really received the expected boost, but Japan’s trade and current account surplus have decreased markedly, even posting negative numbers for the first time in decades. Of course, currency debasement never works: it cannot work. This is Keynesian logic and brilliance in all it splendor.
History did not end with the Cold War and, as Mark Twain put it, whilst history doesn’t repeat it often rhymes. As Alexander, Rome and Britain fell from their positions of absolute global dominance, so too has the US begun to slip. America’s global economic dominance has been declining since 1998, well before the Global Financial Crisis. A large part of this decline has actually had little to do with the actions of the US but rather with the unraveling of a century’s long economic anomaly. China has begun to return to the position in the global economy it occupied for millenia before the industrial revolution. Just as the dollar emerged to global reserve currency status as its economic might grew, so the chart below suggests the increasing push for de-dollarization across the 'rest of the isolated world' may be a smart bet...
Getting out of a Liquidity Trap with monetary policy playing the lead role necessarily involves a Dornbuschian sequence of rational overshooting: The Fed must drive up Wall Street prices, which move quickly, so as to get to Main Street prices that move up slowly, most importantly, wages. This sequencing implies that Wall Street prices must become very rich relative to Main Street prices in order to achieve so-called escape velocity from the Liquidity Trap. At the transition point, Wall Street prices will be rationally “overvalued” relative to their long-term “fair value.” The dominant risk for Wall Street is not bursting bubbles, but rather a long slow grind down in profit’s share of GDP/national income. And you can stick that into a Gordon Model, too! Bonds and stocks may at present be rationally valued, but borrowing from the lyrics of Procol Harum’s Keith Reid: Expected long-term returns are turning a more ghostly whiter shade of pale.
A paradigm shift for the Eurozone...
Inflation, defined as an expansion of the supply of unbacked money, is an elementary evil, always and everywhere that it occurs. It is the ignored and core cause of numerous problems in the economy and in society...
If the US equity market's reaction to the worst jobs data of 2014 is anything to go on; Japanese stocks should be a double overnight given the catastrophe that just printed. While the initial prints for the post-tax-hike period were bad enough (record worst levels in most cases), the revsions are even worse. Drum roll please: 1) Trade balance miss, worst in 4 months; 2) GDP -7.1% miss, revised down, worst since Q1 2009; 3) Business Spending/Capex -5.1% miss, revised down, worst since Q2 2009; and 4) Consumer Spending -5.3% miss, revised down, worst on record. But apart from that, as the Japanese leaders noted last week, "the recovery is heading in the right direction."
The Bank Of Japan (BOJ) says it is looking for consumer spending to stay on a recovery path, focusing on the relatively small increase in nominal wages rather than the steep slide in real wages. Goldman believes the BOJ’s view is founded on money illusion; and crucially, expect the positive effects to be clearly outweighed by the negative impact of lower real wages, and on a net basis see consumption falling. Simply put, once people wake up to the illusion of money, its impact will also fade.
In recent months talking heads, disappointed with the lack of economic recovery, have turned their attention to wages. If only wages could grow, they say, there would be more demand for goods and services: without wage growth, economies will continue to stagnate. Unfortunately for these wishful-thinkers the disciplines of the markets cannot be bypassed.
For close to 300 years, inflation in the US remained very subdued. Small spurts occurred around major wars (Revolutionary, Civil, WW1, etc), but after each, inflation quickly trended back down to its long-term baseline. If you lived during this stretch of time, your money had roughly the same purchasing power your great-grandfather's did. That is, until the "Nixon shock" in 1971, when the dollar's remaining ties to gold were severed. Then inflation exploded. And the inflationary moon-shot has continued since, up to present day. So, we've become used to a system in which our money loses purchasing power over the years. For anyone aged 50 or younger, it's pretty much all we've ever known. But it doesn't have to be this way.
Were this extreme policy to be implemented it would be a further and deliberate debasement of fiat currencies. Alan Greenspan’s warning of “fiat money in extremis” becomes more real by the day. Were this silly proposal ever to become policy, it would significantly increase the risk of inflation and stagflation. In a worst case scenario, it will lead to currency collapse and hyperinflation.
Earlier this month, Retail Sales missed expectations for the 3rd month in a row, essentially flat on the month. As Doug Short rhetorically asks 'how much insight into the US economy does the nominal retail sales report offer?' With the release of the CPI data, we can judge this in 'real' terms (adjusted for inflation and against the backdrop of our growing population)... and the picture is anything but healthy.
Attending costly games is on the margins of the household budget. When the credit card gets maxed out, attending is no longer an option. We're not suggesting professional sports isn't the greatest thing since sliced bread: we're simply asking if attending pro sports games has become unaffordable to the average American.