Tuesday, October 04, 2016

The Federal Reserve 
Is Leading Us To Economic Hell
"Keeping rates at artificially low levels did nothing other than push our economy into the mother of all corners. Look where we are now. The next recession means rates will go below zero .. The U.S. economy is going to suffer another recession in the not-too-distant future. So, for lack of anything else to do, the Fed is preparing to send rates below zero when the economy next needs goosing. That was clearly the message from Jackson Hole. What then? Here is the most likely scenario I think we are facing—and you are not going to like it. We are going to go into the next recession with interest rates still stuck in the sub-1% range. This doesn’t give the Fed much ammunition. Economists (who could certainly qualify as High Priests) have done studies on recent Fed policies. These show that quantitative easing didn’t really do anything, other than maybe goose the stock market. There is also no data that shows any positive benefit from the so-called wealth effect, which was all the academic rage at the beginning of this process. Forget the wealth effect. The fact is that when the stock market goes up, it does not trickle down to the average guy on Main Street .. We know that the Fed will not simply do nothing. We’ll get quantitative easing on a scale that is currently unimaginable. This will blow out the Fed’s balance sheet to a level that is unrecognizable .. Negative rates will drive consumer spending down, not up. They will result in less income in retirees' pockets—forcing them to save more, work longer, and spend less. The next 10 years will see an explosion of government debt and an implosion of the ability of governments to fulfill their promises. Any economic or investment model based on past performance under previous economic conditions will be worthless. Just as worthless as the Federal Reserve’s models."
- John Mauldin*
LINK HERE to the essay


Anonymous said...

Bill Gross Says Bitcoin, Blockchain May Counter Central Banks

Fund manager reiterates criticism of the Fed, BOJ and ECB
Global Unconstrained Bond Fund has gained about 5% this year

New financial technologies such as bitcoin may become increasingly attractive to investors as a protection against central bank low- and negative-interest-rate policies that threaten capitalism, according to billionaire bond manager Bill Gross.

Policies by the Federal Reserve, Bank of Japan and European Central Bank are destroying historical business models that foster savings, investment and economic growth, Gross, who runs the $1.5 billion Janus Global Unconstrained Bond Fund, said in an October investment outlook released Tuesday. He said that as investors lose faith in the system, they will increasingly seek havens.

“Bitcoin and privately agreed upon blockchain technologies amongst a small set of global banks are just a few examples of attempts to stabilize the value of their current assets in future purchasing power terms,” he wrote. “Gold would be another example -- historic relic that it is. In any case, the current system is beginning to be challenged.”

Blockchain is the technology underlying bitcoin, a digital currency that uses encryption techniques to generate new money and verify fund transfers, independent of a central bank. Two members of the U.S. Congress formed a caucus last month to advocate for cryptocurrencies and blockchain-based technologies, which may require new laws to thrive.
‘Casino’ Atmosphere


Anonymous said...

The creators of bubble economies must be made to pay for their sins

Andy Xie says the central bankers and officials who tolerated, even encouraged, the bubbles that set economies up for a crash should answer for their disastrous monetary policies

The Fed has been taking the path of least resistance, hoping that bubbles would lead to a virtuous cycle of investment and wage growth. Instead, it has led the US economy and much of the world down the path of bubbles and rising inequality. In a bubble, a few sharp cookies take the credulous masses to the cleaners.

As bubble economies recur again and again, fewer and fewer people have the chips to play. The froth becomes concentrated. The Fed’s policy is a major factor in rising income and wealth inequality.

The current cycle has run for eight years now, about the same length of time as the previous two cycles. The world is due for another financial crisis.

When it occurs, will the central bankers who have stoked, or at least tolerated, the bubble be held accountable?

People still complain that the bankers who caused the crisis in 2008 got away with murder. But the central bankers and other regulators were equally culpable. They supplied the banks with the weapons and ammunition to carry out the destruction.

Their culpability in this cycle is more obvious. No major economy has deleveraged since 2008. Some, like China, have leveraged up rapidly, contrary to the lessons from the crisis.