Home » Posts tagged 'monetary policy' (Page 4)

Tag Archives: monetary policy

It was clear from the get-go that Monday would be mayhem for the markets – and as it turned out, it proved a lot more than that, with two-year Treasury yields collapsing the most in decades.

At stake was not just the integrity of the financial system, but also the availability of liquidity.

Bloomberg cross-asset strategist, Ven Ram, notes that as of the start of the European morning, the markets appear a lot calmer, with Treasury yields having barely moved, the dollar attempting to claw some way back and stock futures a lot less jittery.

Shortly, we get the readout on inflation for February, with the median estimates for on-month and on-year numbers forecast to show a deceleration.

There are two ways this could play out from the Fed’s perspective.

Scenario I:

The tumult in the markets continues, centered on concerns about the soundness of other regional US banks, liquidity ebbs – as it always does when the markets need it the most!

In such a scenario, what happens with the February inflation prints becomes a sideshow.

In other words, even a surprise, higher-than-forecast print won’t bother the Fed much.

After all, inflation is a pre-existing problem – and the Fed has time to battle this

Scenario II:

If the market jitters calm down, the inflation numbers – together with last week’s payroll data and upcoming retail-sales data – will take regain their predominance.

Even so, the chance of the Fed raising rates by 50 basis points is pretty much zilch.

Calming the markets about the prospect of a systemic crisis towers head and shoulders over inflation fighting from the Fed’s perspective.

After all, when a patient suffering a chronic condition meets with an accident, you treat the patient for life-threatening injuries first.

The long-stay illness isn’t the priority of the hour, as every good doctor knows.

…click on the above link to read the rest…

Fed Fears Complete Economic Collapse – Peter Schiff

February 27, 2023

Fed Fears Complete Economic Collapse – Peter Schiff

Money manager and economist Peter Schiff said in October the Federal Reserve “could NOT win the fight on inflation by raising interest rates.” As inflation just turned up anew, it looks like he was right—again. Schiff explains, “Based on the recent data we got . . . the inflation curve has bent back up. The months of declining inflation are in the rearview mirror. Now, we are going to see accelerating inflation . . . and I think before the year is over, we are going to take out that 9% inflation high last year in year over year CPI (Consumer price Index) . . . and what that is going to show is what the Fed has done thus far in its inflation fight is completely ineffective. If the Fed is serious about fighting inflation, and I do not believe it is, it’s going to have to fight a lot harder than it has. Interest rates need to go up much higher than anybody thinks, but that alone is not going to do the trick. We also have to see a big contraction in consumer credit and lending standards rising so consumers can’t keep spending. . . . Consumers are running up credit card debt. That is inflationary. That is an expansion of the supply of credit.”

It gets worse when the Fed has to save the economy again. Schiff predicts, “I think the Fed is going to have to throw in the towel on the inflation fight because it will be fighting something it fears more, which is a complete economic collapse. . . .The federal government may be legitimately forced to cut Medicare and Social Security instead of illegitimately cutting it through inflation. . . .We have this collapsing standard of living, but think about it as a tax. This is what Americans are paying…

…click on the above link to read the rest…

Global Debt & Death Spiral – John Rubino

February 14, 2023

Global Debt & Death Spiral – John Rubino

Analyst and financial writer John Rubino says we’re are in a “debt and death spiral” that will force dramatic changes on the world. Rubino explains, “The debt spiral part of this means things from here continue to get worse and worse for the big currencies of the world until they die. In other words, until people lose faith in them, refuse to use them and hold them anymore until their value falls to their intrinsic value, which is zero. That manifests to hyperinflation. The value of the currency falls as opposed to the things you buy with it. . . . Things feel basically okay for a long time as long as governments could force interest rates down to really low levels. The side effects of that are massive money creation and, eventually, inflation. That’s what we are dealing with now. So, here we go. Welcome to the end game for the world’s big currencies.”

Rubino contends things have gotten so out of control that there is no stopping what is coming. Rubino says, “We are in the part of the cycle now where things just get worse, and there is nothing we can do about it. You are going to see companies that have borrowed huge amounts of money to buy back their stock, and now they see their interest costs explode. Governments around the world have the same problem, and there is nothing central banks can do about this. The next stage of this is when everybody realizes that there is no fix. Daddy is not going to come home and take care of all of this, and there is no adult supervision. The financial markets are basically on their own with so much debt that there is nothing left to do…

…click on the above link to read the rest…

Companies in UK Are Hitting the Wall at Fastest Rate Since Global Financial Crisis

February 4, 2023

Companies in UK Are Hitting the Wall at Fastest Rate Since Global Financial Crisis

As the price of everything, including debt, continues to soar, life is getting harder and harder for the UK’s heavily indebted businesses.

Business insolvencies in the UK surged by 57% in 2022, to 22,109, according to the latest data from the Insolvency Service, a UK government agency that deals with bankruptcies and companies in liquidation. It is the highest number of insolvencies registered annually since 2009, at the height of the Global Financial Crisis.

Last year “was the year the insolvency dam burst,” said Christina Fitzgerald, the president of R3, the insolvency and restructuring trade body. Insolvencies peaked in the fourth quarter, underscoring the compounding pressures on companies grappling with surging costs and rapidly slowing economic activity.

“Supply-chain pressures, rising inflation and high energy prices have created a ‘trilemma’ of headwinds which many management teams will be experiencing simultaneously for the first time,” Samantha Keen, UK turnround and restructuring strategy partner at EY-Parthenon and president of the Insolvency Practitioners Association (IPA), told the Financial Times. “This stress is now deepening and spreading to all sectors of the economy as falling confidence affects investment decisions, contract renewals and access to credit.”

Other headwinds include soaring interest rates, falling consumer demand, nationwide strikes, lingering Brexit-induced supply chain issues, an epidemic of quiet quitting and both chronic and acutely bad government.

Closest to the Edge

None of this, of course, should come as a surprise. Of all the large economies in Europe, the UK’s is arguably closest to the cliff edge. As newspaper headlines trumpeted this week, the UK economy this year will probably fare worse than Russia’s sanction-hit economy, according to the IMF’s latest forecasts. But then the same could be said of many other European economies, including Germany and Italy.

…click on the above link to read the rest…

You Think the Global Economy Is Brightening? Beware: The Big Hit Is Yet to Come

February 3, 2023

You Think the Global Economy Is Brightening? Beware: The Big Hit Is Yet to Come

Relief is spreading among economic analysts and stock market experts. Energy prices are decreasing noticeably. The energy supply this winter seems secure; in Europe, government support for consumers and producers is available if needed. China is turning away from its zero-covid policy, and production is ramping up again. High goods price inflation is still a major concern for consumers and producers, but central banks are delivering at least some interest rate hikes to hopefully reduce currency devaluation. So should we bid farewell to crisis and recession worries? Unfortunately, no.

Because there is an overall economic development that is tantamount to a storm but remains unnamed by many experts and investors. And that is the global contraction of the real money supply. What does that mean? The real money supply represents the actual purchasing power of money. For example: You have ten dollars, and one apple costs one dollar. So with your ten dollars, you can buy ten apples. If the apple price increases to, say, two dollars per piece, the purchasing power of the ten dollars falls to five apples. It becomes obvious that the real money supply is determined by the interplay between the nominal money supply and the prices of goods.

The real money supply in an economy can decrease when the nominal money supply goes down or goods prices rise. This is exactly what is currently happening around the world. The chart below shows the annual growth rate of the real money supply in the Organization for Economic Cooperation and Development (OECD) from 1981 to October 2022. The real money supply recently contracted by 7.3 percent year on year. There has never been anything like this before. What is the reason?

…click on the above link to read the rest…

Why Recession Is Imminent, In Three Charts

January 20, 2023

Why Recession Is Imminent, In Three Charts

Any one of these would be enough to make the case

The idea that the world’s central banks can inflate the biggest financial bubble in human history — appropriately called the everything bubble — and then deflate it gently into a soft landing is mathematically and philosophically impossible. So the question is not if but when we get a bust that’s commensurate with the boom.

Based on the following three indicators, that bust is imminent.

Massively inverted yield curve
When short-term interest rates rise above long-term rates, a slowdown usually follows. That’s because traditional banks (though not necessarily the monstrous hedge funds that the biggest banks have evolved into) make most of their money by borrowing short and lending long. In normal times, long-term rates are higher than short-term, reflecting the higher risk of lending into the distant future, so the spread between a bank’s borrowing and lending rates produces a nice spread, which translates into a decent profit.

Invert the yield curve by pushing short-term rates above long-term rates, and this business model breaks down. Banks stop making suddenly-unprofitable loans, their customers have less money to spend and invest, and the economy shrinks.

Note two things on the following chart, which depicts the spread between 10-year and 2-year Treasury bond yields. First, when this spread went slightly negative (i.e., 2-year rates higher than 10-year) in 2000 and 2007, recession followed within a year or so. Second, today’s yield curve is a lot more than slightly negative. It is, in fact, one for the record books, implying that the credit markets expect a dramatic slowdown.

Shrinking money supply
A Ponzi scheme needs ever-greater amounts of money flowing in to avoid collapse. Today’s global economy is a classic example of a Ponzi scheme. Therefore, it needs an increasing money supply to function.

…click on the above link to read the rest…

Monetary Policy. Is The Fed Trying To Wean Markets Off Of It?

January 20, 2023

Monetary Policy. Is The Fed Trying To Wean Markets Off Of It?

Is the Fed trying to wean the markets off monetary policy? Such was an interesting premise from Alastair Crooke via the Strategic Culture Foundation. To wit:

“The Fed however, may be attempting to implement a contrarian, controlled demolition of the U.S. bubble-economy through interest rate increases. The rate rises will not slay the inflation ‘dragon’ (they would need to be much higher to do that). The purpose is to break a generalised ‘dependency habit’ on free money.”

That is a powerful assessment. If true, there is an overarching impact on the economic and financial markets over the next decade. Such is critical when considering the impact on financial market returns over the previous decade.

“The chart below shows the average annual inflation-adjusted total returns (dividends included) since 1928. I used the total return data from Aswath Damodaran, a Stern School of Business professor at New York University. The chart shows that from 1928 to 2021, the market returned 8.48% after inflation. However, notice that after the financial crisis in 2008, returns jumped by an average of four percentage points for the various periods.“

Monetary, Monetary Policy. Is The Fed Trying To Wean Markets Off Of It?

We can trace those outsized returns back to the Fed’s and the Government’s fiscal policy interventions during that period. Following the financial crisis, the Federal Reserve intervened when the market stumbled or threatened the “wealth effect.”

Many suggest the Federal Reserve’s monetary interventions do not affect financial markets. However, the correlation between the two is extremely high.

The result of more than a decade of unbridled monetary experiments led to a massive wealth gap in the U.S. Such has become front and center of the political landscape.

It isn’t just the massive expansion in household net worth since the Financial Crisis that is troublesome. The problem is nearly 70% of that household net worth became concentrated in the top 10% of income earners.

…click on the above link to read the rest…

2023: Expect a financial crash followed by major energy-related changes

January 10, 2023

2023: Expect a financial crash followed by major energy-related changes

Why is the economy headed for a financial crash? It appears to me that the world economy hit Limits to Growth about 2018 because of a combination of diminishing returns in resource extraction together with rising population. The Covid-19 pandemic and the accompanying financial manipulations hid these problems for a few years, but now, as the world economy tries to reopen, the problems are back with a vengeance.

Figure 1. World primary energy consumption per capita based on BP’s *2022 Statistical Review of World Energy*. Same chart shown in post, *Today’s Energy Crisis Is Very Different from the Energy Crisis of 2005*.

In the period between 1981 and 2022, the economy was lubricated by a combination of ever-rising debt, falling interest rates, and the growing use of Quantitative Easing. These financial manipulations helped to hide the rising cost of fossil fuel extraction after 1970. Even more money supply was added in 2020. Now central bankers are trying to squeeze the excesses out of the system using a combination of higher interest rates and Quantitative Tightening.

After central bankers brought about recessions in the past, the world economy was able to recover by adding more energy supply. However, this time we are dealing with a situation of true depletion; there is no good way to recover by adding more energy supplies to the system. Instead, the only way the world economy can recover, at least partially, is by squeezing some non-essential energy uses out of the system. Hopefully, this can be done in such a way that a substantial part of the world economy can continue to operate in a manner close to that in the past.

One approach to making the economy more efficient in its energy use is by greater regionalization. If countries can start trading almost entirely with nearby neighbors, this will reduce the world’s energy consumption…

…click on the above link to read the rest…

Inflation, recession, and declining US hegemony

December 24, 2022

Inflation, recession, and declining US hegemony

In the distant future, we might look back on 2022 and 2023 as pivotal years. So far, we have seen the conflict between America and the two Asian hegemons emerge into the open, leading to a self-inflicted energy crisis on the western alliance. The forty-year trend of declining interest rates has ended, replaced by a new rising trend the full consequences and duration of which are as yet unknown.

The western alliance enters the New Year with increasing fears of recession. Monetary policy makers face an acute dilemma: do they prioritise inflation of prices by raising interest rates, or do they lean towards yet more monetary stimulation to ensure that financial markets stabilise, their economies do not suffer recession, and government finances are not driven into crisis?

This is the conundrum that will play out in 2023 for the US, UK, EU, Japan, and others in the alliance camp. But economic conditions are starkly different in continental Asia. China is showing the early stages of making an economic comeback. Russia’s economy has not been badly damaged by sanctions, as the western media would have us believe. All members of Asian trade organisations are enjoying the benefits of cheap oil and gas while the western alliance turns its back on fossil fuels.

The message sent to Saudi Arabia, the Gulf Cooperation Council, and even to OPEC+ is that their future markets are with the Asian hegemons. Predictably, they are all gravitating into this camp. They are abandoning the American-led sphere of influence.

2023 will see the consequences of Saudi Arabia ending the petrodollar. Energy exporters are feeling their way towards new commercial arrangements in a bid to replace yesterday’s dollar. There’s talk of a new Asian trade settlement currency…

…click on the above link to read the rest…

It’s Wholesale Robbery!

December 23, 2022

It’s Wholesale Robbery!

The latest inflation news was glorious, they said. The whole media told us so!

It’s easing, improving, better than it has been and headed in the right direction. So stop your kvetching and get out there and make (and spend) money. For that matter, throw around the credit card a bit and stop trying to save money.

Inflation is all but done! It’s pretty interesting because they have been saying this for the better part of 18 months.

In reality, the consumer price index rose 7.1% from a year ago. That’s terrible. Yes, not as terrible as last month, but look at the breakdown in detail.

Food at home is up 10% while food at restaurants is up 12%. Fuel oil is up 65.7 % and transportation services are up 14.2%!

So on it goes, and each month we get a report, and the intensity shifts from one sector to another. The perception that this is cooling is based mostly on the weighting scheme that yields the final number. This is no world in which we are watching the problem gradually disappear.

Wholesale Robbery of the American People

You can see the scale of the problem by looking at the so-called sticky rate of price increases over 14 years. This reveals which part of the overall index is truly embedded and less subject to exigencies of temporary market change.

This is wholesale robbery of the American people. That the thief stole a full place setting of silver last month but this month left the dessert spoon is hardly an improvement and a case for leaving the doors unlocked.

They’ve told us for 18 months that it’s not so bad and we should all stop kvetching about it. But it keeps being bad. The inflation is embedded and clearly has a long way to go before the momentum runs out of steam.

…click on the above link to read the rest…

Global Rate Hikes Hit the Wall of Debt Maturity

December 17, 2022

Global Rate Hikes Hit the Wall of Debt Maturity

More than ninety central banks worldwide are increasing interest rates. Bloomberg predicts that by mid-2023, the global policy rate, calculated as the average of major central banks’ reference rates weighted by GDP, will reach 5.5%. Next year, the federal funds rate is projected to reach 5.15 percent.

Raising interest rates is a necessary but insufficient measure to combat inflation. To reduce inflation to 2%, central banks must significantly reduce their balance sheets, which has not yet occurred in local currency, and governments must reduce spending, which is highly unlikely.

The most challenging obstacle is also the accumulation of debt.

The so-called “expansionary policies” have not been an instrument for reducing debt, but rather for increasing it. In the second quarter of 2022, according to the Institute of International Finance (IIF), the global debt-to-GDP ratio will approach 350% of GDP. IIF anticipates that the global debt-to-GDP ratio will reach 352% by the end of 2022.

Global issuances of high-yield debt have slowed but remain elevated. According to the IMF, the total issuance of European and American high-yield bonds reached a record high of $1.6 trillion in 2021, as businesses and investors capitalized on still-low interest rates and high liquidity. According to the IMF, high-yield bond issuances in the United States and Europe will reach $700 billion in 2022, similar to 2008 levels. All of the risky debt accumulated over the past few years will need to be refinanced between 2023 and 2025, requiring the refinancing of over $10 trillion of the riskiest debt at much higher interest rates and with less liquidity.

Moody’s estimates that United States corporate debt maturities will total $785 billion in 2023 and $800 billion in 2024. This increases the maturities of the Federal government. The United States has $31 trillion in outstanding debt with a five-year average maturity, resulting in $5 trillion in refinancing needs during fiscal 2023 and a $2 trillion budget deficit…

…click on the above link to read the rest…

The Mother of all Economic Crises

December 14, 2022

The Mother of all Economic Crises

Nouriel Roubini, a former advisor to the International Monetary Fund and member of President Clinton’s Council of Economic Advisors, was one of the few “mainstream” economists to predict the collapse of the housing bubble. Now Roubini is warning that the staggering amounts of debt held by individuals, businesses, and the government will soon lead to the “mother of all economic crises.”

Roubini properly blames the creation of a debt-based economy on the near-or-at-zero interest rate and quantitative easing policies pursued by the Federal Reserve and other central banks. The inevitable result of the zero-interest and quantitative easing policies is price inflation wreaking havoc on the American people.

The Fed has been trying to eliminate price inflation with a series of interest rate increases. So far, these rate increases have not significantly reduced price inflation. This is because rates remain at historic lows. Yet the rate increases have had negative economic effects, including a decline in the demand for new homes. Increasing interest rates make it impossible for many middle- and working-class Americans to afford a monthly mortgage payment for even a relatively inexpensive home.

The main reason the Fed cannot raise rates to anywhere near what they would be in a free market is the effect it would have on the federal government’s ability to manage its debt. According to the Congressional Budget Office (CBO), interest on the national debt is already on track to consume 40 percent of the federal budget by 2052 and will surpass defense spending by 2029! A small interest rate increase can raise yearly federal debt interest rate payments by many billions of dollars, increasing the amount of the federal budget devoted solely to servicing the debt.

…click on the above link to read the rest…

The “Barbarous Relic” Helped Enable a World More Civilized than Today’s

December 12, 2022

The “Barbarous Relic” Helped Enable a World More Civilized than Today’s

One of history’s greatest ironies is that gold detractors refer to the metal as the barbarous relic. In fact, the abandonment of gold has put civilization as we know it at risk of extinction.

The gold coin standard that had served Western economies so brilliantly throughout most of the nineteenth century hit a brick wall in 1914 and was never able to recover, or so the story goes. As the Great War began, Europe turned from prosperity to destruction, or more precisely, toward prosperity for some and destruction for the rest. The gold coin standard had to be ditched for such a prodigious undertaking.

If gold was money, and wars cost money, how was this even possible?

First, people were already in the habit of using money substitutes instead of money itself—banknotes instead of the gold coins they represented. People found it more convenient to carry paper around in their pockets than gold coins. Over time the paper itself came to be regarded as money, while gold became a clunky inconvenience from the old days.

Second, banks had been in the habit of issuing more bank-notes and deposits than the value of the gold in their vaults. On occasion, this practice would arouse public suspicion that the notes were promises the banks could not keep. The courts sided with the banks and allowed them to suspend note redemption while staying in business, thus strengthening the government-bank alliance. Since the courts ruled that deposits belonged to the banks, bankers could not be accused of embezzlement. The occasional bank runs that erupted were interpreted as a self-fulfilling prophecy. If people lined up to withdraw their money because they believed their bank was insolvent, the bank soon would be…

…click on the above link to read the rest…

What Does the Fed’s Jerome Powell Have Up His Sleeve?

December 12, 2022

What Does the Fed’s Jerome Powell Have Up His Sleeve?

The Real Goal of Fed Policy: Breaking Inflation, the Middle Class or the Bubble Economy?

“There is no sense that inflation is coming down,” said Federal Reserve Chairman Jerome Powell at a November 2 press conference, — this despite eight months of aggressive interest rate hikes and “quantitative tightening.” On November 30, the stock market rallied when he said smaller interest rate increases are likely ahead and could start in December. But rates will still be increased, not cut. “By any standard, inflation remains much too high,” Powell said. “We will stay the course until the job is done.”

The Fed is doubling down on what appears to be a failed policy, driving the economy to the brink of recession without bringing prices down appreciably. Inflation results from “too much money chasing too few goods,” and the Fed has control over only the money – the “demand” side of the equation. Energy and food are the key inflation drivers, and they are on the supply side. As noted by Bloomberg columnist Ramesh Ponnuru in the Washington Post in March:

Fixing supply chains is of course beyond any central bank’s power. What the Fed can do is reduce spending levels, which would in turn exert downward pressure on prices. But this would be a mistaken response to shortages. It would answer a scarcity of goods by bringing about a scarcity of money. The effect would be to compound the hit to living standards that supply shocks already caused.

So why is the Fed forging ahead? Some pundits think Chairman Powell has something else up his sleeve.

The Problem with “Demand Destruction”

…click on the above link to read the rest…

Peter Schiff: You Think Inflation Is Bad Now? Wait Until Next Year!

December 6, 2022

Peter Schiff: You Think Inflation Is Bad Now? Wait Until Next Year!

Peter Schiff recently appeared on Real America with Dan Ball to talk about the economy, energy prices, and inflation. Peter said if you think inflation was bad this year, wait until next year with a much weaker dollar.

Dan set the interview up with a list of tech firms set to lay off employees. He asked how people can say the economy is just fine when you have tens of thousands getting laid off, nobody has any savings, and when the housing market is tanking.

Peter said they’re going to keep saying that, but it simply isn’t true. He pointed out that the entirety of the Q3 GDP increase was from a decrease in the trade deficit.

It’s not like it went away. It just got slightly less enormous than it had been. And that was for two reasons. The strong dollar enabled us to buy imports cheaper. But also, all that oil that was released from the Strategic Petroleum Reserve, we got to export that, so that increased our exports and reduced our deficit. And so that helped us out.”

But those impacts are already starting to reverse. The dollar is tanking.

And all of the economic data that’s come out so far on the fourth quarter suggests that GDP in the fourth quarter is going to be negative again.”

That would mean a drop in GDP in three of the four quarters in 2022. And Peter said the Q4 drop could be the biggest yet.

As far as the petroleum reserves, Peter said we’re going to run out sometime next year.

And I think in California, by the time Biden finishes his first term, and hopefully his only term, I bet you guys in California will be paying $10 a gallon for gas.”

…click on the above link to read the rest…

Tag Archives: monetary policy

Content

Post categories

Economic Links

Energy/Resource Links

Environmental Links

Geopolitical Links

Liberty Links

News Links

Other Links

Survival Skills

Post Archives by Category

Scenario I:

Scenario II:

Wholesale Robbery of the American People

Post navigation

Latest Posts