Home » Posts tagged 'us federal reserve' (Page 2)

Tag Archives: us federal reserve

Open the Overton Window

May 8, 2024

Open the Overton Window

You may have heard of the “Overton window.”

The concept of the Overton window caught on in professional culture, particularly those seeking to nudge public opinion, because it taps into a certain sense that we all know is there.

There are things you can say and things you cannot say, not because there are speech controls (though there are) but because holding certain views makes you anathema and dismissable. This leads to less influence and effectiveness.

The Overton window is a way of mapping sayable opinions.

The goal of advocacy is to stay within the window while moving it just ever so much. For example, if you’re writing about monetary policy, you should say that the Fed should not immediately reduce rates for fear of igniting inflation.

You can really think that the Fed should be abolished but saying that is inconsistent with the demands of polite society. That’s only one example of a million.

To notice and comply with the Overton window is not the same as merely favoring incremental change over dramatic reform. There is not and should never be an issue with marginal change.

That’s not what’s at stake.

To be aware of the Overton window, and fit within it, means to curate your own advocacy. You should do so in a way that’s designed to comply with a structure of opinion that’s pre-existing as a kind of template we’re all given.

It means to craft a strategy specifically designed to game the system, which is said to operate according to acceptable and unacceptable opinionizing.

In every area of social, economic and political life, we find a form of compliance with strategic considerations seemingly dictated by this window. There’s no sense in spouting off opinions that offend or trigger people because they’ll just dismiss you as not credible.

…click on the above link to read the rest of the article…

Money Is a Monopoly Government Will Never Surrender

May 5, 2024

Money Is a Monopoly Government Will Never Surrender

A major intellectual revelation from my youth came from reading Murray Rothbard’s “What Has Government Done to Our Money?” (1963). He includes a passing opinion that private markets are perfectly capable of producing money with no help from government. Under a sweeping monetary reform, private mints could compete in offering this good with full associated services. There is no need for any government intervention here.

It was the kind of claim that, at some point in one’s life, causes the jaw to hit the floor. Investigating this assertion more, I came to see that there was a large literature on the topic. Historically, money originated in the market economy itself, a naturally evolving institution that met the needs of trade. Whatever good was generally valued by everyone, and was as capable of being divided into consistent units with a stable value, could be deployed as money, with no need for government to do anything but watch.

But of course history has not panned out that way. Every government has a strong incentive to monopolize the good called money because this is how they can tax their citizens, reward the most compliant industries, cultivate close relationships with bankers, and inflate the currency at will through a variety of methods depending on the technology of the time.

We can of course imagine primitive tribes or pre-colonial native populations using rocks and shells, but is there a modern case where private coinage became normalized? In a major but often overlooked work of historical scholarship, economist George Selgin has written the most extensive treatment of the private coinage industry in the UK at the dawn of the Industrial Revolution.

…click on the above link to read the rest of the article…

Inflation is Transitory Again

May 5, 2024

Inflation is Transitory Again

Because it has to be in order to fund Bidenomics.

As Powell clasps his hands in desperate hope without any evidence to back his hope, the US Treasurer today, like the Treasurer in yesteryear, is giving a solid thumbs-up to his plan, which is already accomplishing everything the Treasury desperately needed.

After yesterday’s low “jobless claims” report that held unemployment steady and that looked rigged to hit a targeted goal (again), today delivered a “new jobs” report that came in (at 175,000 new jobs), well below expectations of 240,000. By that report, the unemployment rate ticked higher from 3.8% to 3.9%.

As I commented yesterday, we may be nearing the point where all the layoffs this year and last year are bringing jobs down enough to where they will finally start to come in line with available workers. Once that threshold is met, unemployment can rise when and if layoffs are higher than normal. We’ll have to see if this minute rise becomes a trend, though, since the numbers pulled a head fake to his level in February, too, then dipped back down in March to the familiar 3.8 level they had hovered along in August, September and October of last year.

As usual, the slightest hint of a softening labor market caused stock and bond investors to back markets down from the recent financial tightening investors had brought back to the marketplace. Brains smoked in the fumes of hopium and fueled with pure testosterone bid stocks and bonds and rate cuts hopes all back up again today in response to this slight hint that the Fed’s jobless gauge may finally allow it to cut rates. Same pipe dream from the same glass-pipe smokers. Powell’s limp comments about fighting inflation this week had already given lift back to falling markets.

…click on the above link to read the rest of the article…

What Are the Odds the Fed Hikes Interest Rates to 8 Percent?

May 5, 2024

What Are the Odds the Fed Hikes Interest Rates to 8 Percent?

8 Percent “Prediction” or “Possibility”?

This headline by TFTC caught my eye: JP Morgan Predicts Crushing 8% Interest Rate Spike

JP Morgan forecasts interest rates rising to 8%, potentially triggering a recession and banking crisis similar to past financial downturns.

JP Morgan, the largest bank in the United States, has released a 61-page shareholder letter predicting an increase in interest rates to 8%—a figure that hasn’t been seen since the era of the late eighties. This dire forecast comes on the heels of staggering stagflation numbers and warns of potentially catastrophic consequences for the economy and the banking system.

The last time the country grappled with 8% interest rates, it triggered the recession during the first Bush administration, resulting in mortgage rates soaring to 10% and ten-year bond yields hitting 9%. The implications of such rates in today’s climate could be devastating. An analysis suggests that the housing market, already struggling, would face further decline, with a 7% rate hike serving as a crippling blow to prospective young American homeowners, increasing their purchasing costs by an estimated 50%.

No Such Prediction

That sounds dire, and it surely would be. However, Jamie Dimon, CEO of JPMorgan, made no such prediction in its 2023 Annual Shareholder Letter (link repeated from above). Here is the pertinent snip:

Equity values, by most measures, are at the high end of the valuation range, and credit spreads are extremely tight. These markets seem to be pricing in at a 70% to 80% chance of a soft landing — modest growth along with declining inflation and interest rates. I believe the odds are a lot lower than that. In the meantime, there seems to be an enormous focus, too much so, on monthly inflation data and modest changes to interest rates…

…click on the above link to read the rest of the article…

David Stockman on the $1.3 Trillion Elephant In The Room

May 3, 2024

David Stockman on the $1.3 Trillion Elephant In The Room

These people have to be stopped!

We are talking about the nation’s unhinged monetary politburo domiciled in the Eccles Building, of course. It is bad enough that their relentless inflation of financial assets has showered the 1% with untold trillions of windfall gains, but their ultimate crime is that they lured the nation’s elected politician into a veritable fiscal trance. Consequently, future generations will be lugging the service costs on insuperable public debts for years to come.

For more than two decades these foolish PhDs and monetary apparatchiks drove the entire Treasury yield curve to rock bottom, even as public debt erupted skyward. In this context, the single biggest chunk of the Treasury debt lies in the 90-day T-bill sector, but between December 2007 and June 2023 the inflation-adjusted yield on this workhorse debt security was negative 95% of the time.

That’s right. During that 187-month span, the interest rate exceeded the running (LTM) inflation rate during only nine months, as depicted by the purple area picking above the zero bound in the chart, and even then by just a tad. All the rest of the time, Uncle Sam was happily taxing the inflationary rise in nominal incomes, even as his debt service payments were dramatically lagging the 78% rise of CPI during that period.

Inflation-Adjusted Yield On 90-Day T-bills, 2007 to 2022

The above was the fiscal equivalent of Novocain. It enabled the elected politicians to merrily jig up and down Pennsylvania Avenue and stroll the K-Street corridors dispensing bountiful goodies left and right, while experiencing nary a moment of pain from the massive debt burden they were piling on the main street economy..

…click on the above link to read the rest of the article…

If Treasury Bonds Hit 5%, You’re Gonna See Some Serious Sh*t

May 2, 2024

If Treasury Bonds Hit 5%, You’re Gonna See Some Serious Sh*t

Almost as if all of us Austrian Economists (read: any carbon based life form using common sense when it comes to finance) live in an echo chamber together, a third expert I respect came out over the last few days and has warned that 5% on the 10 year treasury would be the breaking point for markets and the economy.

If my calculations are correct, when this thing hits 5%…you’re going to see some serious sh*t.

Peter Schiff now argues that the Federal Reserve and US Treasury are being forced to confront the reality that inflation is persistent, which has led to an increase in yields, recently reaching 4.7% on the 10 year, the highest since November.

The thought process, for financial neophytes, is that bond traders will continue to sell bonds, driving yields up, in order to make it difficult for the Fed to cut rates — and essentially forcing the Fed to fight inflation head-on instead of capitulating to the economy and markets (should they crash).

This follows Jack Boroudjian’s analysis from last week, stating that rates will keep drifting higher and that 5% to 5.5% is the danger zone: Yields To Trigger “Serious Earthquakes” Across Economy: Jack Boroudjian

It also follows Harris Kupperman’s similar take: Bond Market About To Have An “Aneurism”: Harris Kupperman

Put simply, the Fed faces a dilemma: it needs to raise rates to combat inflation and make Treasuries more appealing, but higher rates would exacerbate the already burdensome debt servicing costs and threaten industries reliant on borrowing. Or, to use the parlance of my recent interview with Matt Taibbi, higher rates simply serve up another day of “sh*t burgers” to the economy, whereas lower rates act as rocket fuel for economic activity (and market confidence).

…click on the above link to read the rest of the article…

The Fed’s Game of “Make Believe” Comes to an End

April 30, 2024

The Fed’s Game of “Make Believe” Comes to an End

It’s barely been a year since the 2023 bank crisis in which several large banks, including Silicon Valley Bank and Signature Bank, failed.

At the time, I wrote that the bank failures weren’t over, and that there would be more.

But it’s been quiet for most of the last year; the banking system has been pretty calm thanks in large part to an emergency program that the Federal Reserve created to bail out other troubled banks.

They called it the Bank Term Funding Program (BTFP), and it essentially expired a few weeks ago. In other words, no more emergency lending to troubled banks.

Barely a month later, we have already witnessed our first casualty: Pennsylvania-based Republic First (not to be confused with First Republic, which failed last year) was shut down by regulators on Friday afternoon.

Republic First had the same issues as the others that failed last year — too many ‘unrealized bond losses’ on their balance sheet.

Just like Silicon Valley Bank, Signature Bank, etc. last year, Republic First had used their customers’ deposits to buy US Treasury bonds in 2021 and 2022, back when bond prices were at all-time highs.

By early 2023, the situation had reversed. Bond prices had plummeted; even supposedly ‘safe’ and ‘stable’ US Treasury bonds had fallen substantially in price, and banks were sitting on huge losses.

Remember that bond prices fall when interest rates rise. So when the Fed jacked up interest rates from 0% to 5% in an attempt to control inflation, they were simultaneously creating huge losses in the bond market… which also meant huge losses for banks.

Silicon Valley Bank was just the tip of the iceberg. Plenty of other banks (including Bank of America) had racked up enormous bond losses. In fact the total unrealized losses in the banking sector last year amounted to a whopping $620 billion.

…click on the above link to read the rest of the article…

The Federal Reserve Is About to Go Full Banana Republic

April 30, 2024

The Federal Reserve Is About to Go Full Banana Republic

Peeling back the truth, one banana at a time.

According to an article on Yahoo! today, the top banana in finance, J. Powell, has already decided to go full bananatard. It is the financial hallmark of banana republics to print money in order to finance their debts. The Federal Reserve has never been allowed by law under its charter to do that because politicians were, long ago, smart enough to notice that all nations that take that path to financing their ambitious government programs turn to ash in the flames of hyperinflation.

We already have high inflation to deal with. After just writing a Deeper Dive that explained why we are already in a situation of true stagflation—the very situation that banana republics try to print their way out of—another financial writer this morning says the same thing on Seeking Alpha:

An old “new word” has entered the economic and market narratives in recent weeks: Stagflation. It’s an old word because the United States suffered from two bouts of “stagflation” from the middle 1970s to early 1980s. It’s a new word because there’s a new generation of market participants.

Stagflation is an economic cycle when economic growth is low (the “stag”) and inflation (the “flation”) are high. Low growth in past bouts also included high unemployment. A key factor in those stagflations was OPEC’s manipulation of oil supplies….

One of the key components of inflation has always been energy. We can see that going back a century in the data. It was most acutely felt during the 1970s and early 1980s stagflationary periods.

…click on the above link to read the rest of the article…

Woods Exposes the Federal Reserve System

April 26, 2024

Woods Exposes the Federal Reserve System

The first thing to know about Dr. Thomas E. Woods, Jr.’s’ book Our Enemy, the Fed is he’s giving it away. Click the link, get your copy and read the whole book. Clearly, such intellectual charity is not only rare but in the educational spirit of Mises.org. The subject matter is light-heavy but Woods, author of the bestseller Meltdown (reviewed here), navigates it with the smooth skill of a master, making the reader experience satisfying from beginning to end.

The title reflects another insight, paralleling as it does Albert Jay Nock’s Our Enemy, the State. Most of us were raised to believe government and its agencies serve our best interests. As libertarian scholarship has shown the truth is the exact opposite, particularly with government’s sleazy relationship with money and banking. Admittedly, it’s a hard idea to accept since it involves a pernicious breach of trust, but Woods makes it abundantly clear. To our overlords we are easily-duped chattel.

Until Ron Paul decided to run for president and his End the Fed came along in 2009, the general public was mostly blind to the Fed’s existence. Austrians aside, the few who knew something about it — mostly university-trained economists on the take from the Fed — considered it a vital part of an advanced industrial economy. Yet the Fed had been around for 96 years when Dr. Paul’s book emerged. Given that it’s in charge of the money we use how did it remain in the shadows for tax-burdened citizens for nearly a century? What’s up with that?

The Federal Reserve Bank of St. Louis tells us the Fed’s congressional assignment is “to promote maximum employment and price stability.” (Bold in original) For these it talks about interest rates, and its aim is to increase the money supply so that prices rise gently at or around a 2 percent rate.

…click on the above link to read the rest of the article…

Oil prices aren’t the Fed’s biggest problem right now — American demand is, says an economist

April 24, 2024

Oil prices aren’t the Fed’s biggest problem right now — American demand is, says an economist

Inflation could see a resurgence in 2025, BlackRock strategists warned. Jonathan Kitchen/Getty Images

“I think what’s difficult for the Fed currently is actually the part of CPI that is being driven by demand, rather than the supply issues or the energy issues, which are perhaps easier to deal with,” Samy Chaar, the chief economist of Lombard Odier, told Bloomberg TV. The Swiss private bank managed 193 billion Swiss francs, or $212.8 billion, in assets at the end of December.

A key inflation metric for the Fed, the Personal Consumption Expenditures Price Index, was little changed in March over its 2.8% reading in February. Federal Reserve chair Jerome Powell highlighted the index earlier this week as he signaled that interest rate cuts may come later, rather than sooner.

The US economy has been strong, with job growth and retail sales also rising more than expected for the month of March.

“The problem with the US is the sticky part that comes from services. Services is demand, and that demand needs to come from somewhere — and that’s a robust economy,” Chaar told Bloomberg. A gauge from the Institute for Supply Management showed the US service sector expanded moderately in March.

“Consumers are consuming because they have jobs, because they have rising incomes,” Chaar said.

This means inflation is fueled by demand rather than oil supply, even if a rise in energy prices complicates the Fed’s job, he said.

The Fed is now trying to engineer a soft landing for the hot US economy without causing it to tip into a recession.

“I would say the biggest challenge here for the Fed is to manage the demand of the US economy,” Chaar said. “It comes from domestic America, not from the Middle East.”

What the Rising Gold Price Signals

April 24, 2024

What the Rising Gold Price Signals

The recent run-up in the gold price has not garnered the attention among the mainstream financial media outlets as it should. Gold has, in part, been overshadowed by the rise in the price of bitcoin and other cryptocurrencies.

Naturally, the financial press, which is really an arm of the government and its central bank, wants to ignore, as much as possible, references to gold as protection against the continuing increase in the price level which itself has been deliberately understated by monetary officials. The media and government understand that precious metals are the ultimate security against runaway inflation and economic collapse.

While the increase in the gold price has reached nominal highs, it and the price of silver have not passed their all-time 1980 highs in real terms. Adjusted for inflation, gold would have to rise to about $3590 an ounce while silver would have to surpass $50 an ounce. Both are poised to exceed these watermarks in the not-too-distant future.

Precious metals will continue to escalate unless the Federal Reserve radically changes its interest rate policy to combat inflation as former Fed Chairman Paul Volcker once did. Volcker raised interest rates to double-digit levels which caused gold prices to fall. While Volcker could get away with such actions (because, at the time, the U.S. was still a creditor nation), current Chair Jerome Powell cannot because of the enormity of public and private debt. Double-digit interest rates would collapse the economy and plunge millions of Americans into bankruptcy.

The rising price of gold is anticipating some of the promised policy actions of the Fed. Since the end of last year, the central bank has indicated that it would be cutting interest rates. In addition, Powell is considering ending the Fed’s “Quantitative Tightening” (QT) program. Both are highly inflationary.

…click on the above link to read the rest of the article…

Black swan hedge fund says Fed rate cuts will signal market crash

April 23, 2024

Black swan hedge fund says Fed rate cuts will signal market crash

Federal Reserve Board Building in Washington

NEW YORK, April 22 (Reuters) – While U.S. financial markets debate the timing of interest rate cuts, one tail-risk hedge fund is warning that investors should make the most of recent economic optimism while it lasts, as a shift to lower rates will signal a dramatic market crash.

“This is a case of be careful what you wish for,” said Mark Spitznagel, chief investment officer and founder of Universa, a $16 billion hedge fund specializing in risk mitigation against “black swan” events – unpredictable and high-impact drivers of market volatility.

Spitznagel’s view is not widely held. The much-anticipated shift to a less restrictive monetary policy by the Federal Reserve has helped buoy stocks and bonds in recent months, although signs of stubborn inflation have eroded expectations for how deeply the central bank will be able to cut interest rates in 2024.

Spitznagel argues that such a shift would likely take place only when economic conditions deteriorate, creating a challenging environment for markets.

“People think it’s a good thing the Federal Reserve is dovish, and they’re going to cut interest rates … but they’re going to cut interest rates when it’s clear the economy is turning into a recession, and they will be cutting interest rates in a panicked fashion when this market is crashing,” Spitznagel said in an interview with Reuters.

Funds such as Universa often use credit default swaps, stock options and other derivatives to profit from severe market dislocations. Generally they are cheap bets for a big, long-shot payoff that otherwise are a drag on the portfolio, much like monthly insurance policy payments.

…click on the above link to read the rest of the article…

Markets Are Biting Their Lips over Global Chaos

April 21, 2024

Markets Are Biting Their Lips over Global Chaos

And Fed Chair Powell is joining them because suddenly nothing is going right for his soft-landing plans!

Rising Middle-East tensions are driving up the price of crude oil and driving down the price of stocks and value of bonds. Analysts are saying oil could go to $100/bbl if the conflict between Israel and Iran goes any further. If Israel responds to the recent attack by Iran, some think Iran is likely to fight back with the West in a variation of what it has already done via its proxies. In the worst-case scenario for oil, Iran will block the Strait of Hormuz to tanker traffic, using its proxies to do there as they have already done on the other side of the Arabian Peninsula (or doing that directly, themselves, from Iran). That could raise oil to $130/bbl, which would blow the doors off inflation. Societe Generale puts the risk at $140/bbl if the US gets involved. For now, however, the oil market is just biting its lips … like this:

Well, that’s Fed Chair Jerome Powell, but he is biting his, too, as everything turns against his flight plans for a soft landing at the end of his own war … with inflation.

That’s because the Fed pumped so much money into the economy during the Covid lockdown fiasco that he can’t get the surplus money out quickly enough. As noted yesterday, and caught in the news again today, Powell has clearly pushed rate cuts back once again. In fact, Bank of America is now resetting its calendar for the first cut to March of next year (going for a different March than the one most analysts originally thought they would get…

…click on the above link to read the rest of the article…

“The Federal Reserve Is Clearly Trapped”: Lawrence Lepard

April 18, 2024

“The Federal Reserve Is Clearly Trapped”: Lawrence Lepard

Friend of Fringe Finance Lawrence Lepard released his most recent investor letter this week.

Friend of Fringe Finance Lawrence Lepard released his most recent investor letter this week. He gets little coverage in the mainstream media, which, in my opinion, makes him someone worth listening to twice as closely.

Larry was kind enough to allow me to share his thoughts heading into Q2 2024. The letter has been edited ever-so-slightly for formatting, grammar and visuals.

QUARTERLY OVERVIEW

Globally, the stock markets continued their 45-degree angle rise during the first quarter. Crude oil, and commodities broadly, also had a stair-step rise consistently during the quarter. Gold and silver and the miners were an interesting dichotomy. Bullion prices were flat to slightly down in January and February, and the miners were clobbered during those early months of Q1. However, in March the price of gold broke through the long-standing $2,070 ceiling and the miners responded, driving the Fund up by 25.4%. Gold miner indices were down 17% in the first two months before the March move.

Note that the gold mining stocks still have not provided any leverage to the price of gold. In fact, in the first quarter they did not even keep pace with the increase in the price of gold. With gold up 8.1% in the quarter, the gold mining indices were up 2%. Typically, gold miners provide 2x to 3x leverage in terms of returns; so with gold up 8%, the miners would typically have been up 16% to 24%. This supports our thesis that the miners are still undervalued and are going to mean revert with a vengeance as this bull market in gold continues. The gold mining shares have a long way to go before they reflect fair value.

…click on the above link to read the rest of the article…

What About Prices?

April 16, 2024

What About Prices?

Chapter 8 from my forthcoming book Rebuilding Economics from the Top Down

Inflation, having been quiescent for decades, became a serious issue once more with the bout of inflation that occurred after the peak of the government reaction to the Covid crisis. Though it did not reach the 12-15% levels of the mid-1970s to mid-1980s, and it has fallen sharply from its peak of 8.9% p.a. in June of 2022 to 3.2% in October 2023, it was still a serious break from the low inflation period from the mid-1980s until the beginning of the 2020s—see the top chart in Figure 19.

This is Chapter 8 from my forthcoming book Rebuilding Economics from the Top Down, which will be published by the Budapest Centre for Long-Term Sustainability and the Pallas Athéné Domus Meriti Foundation. I am serialising the book chapters here. A watermarked PDF of the manuscript is available to supporters.

The original Neoclassical (and Austrian) explanation for inflation is that it is caused by “too much money chasing too few goods”, with government money creation being the culprit, and with “long and variable lags” between government deficits and actual inflation:

The lag between the creation of a government deficit and its effects on the behavior of consumers and producers could conceivably be so long and variable that the stimulating effects of the deficit were often operative only after other factors had already brought about a recovery rather than when the initial decline was in progress. Despite intuitive feelings to the contrary, I do not believe we know enough to rule out completely this possibility. If it were realized, the proposed framework could intensify rather than mitigate cyclical fluctuations; that is, long and variable lags could convert the fluctuations in the government contribution to the income stream into the equivalent of an additional random disturbance. (Friedman 1948, p. 254. Emphasis added).

…click on the above link to read the rest of the article…

Tag Archives: us federal reserve

Content

Post categories

Economic Links

Energy/Resource Links

Environmental Links

Geopolitical Links

Liberty Links

News Links

Other Links

Survival Skills

Post Archives by Category

Post navigation

Latest Posts