{"id":41214,"date":"2018-12-03T08:28:06","date_gmt":"2018-12-03T13:28:06","guid":{"rendered":"https:\/\/olduvai.ca\/?p=41214"},"modified":"2018-12-03T08:28:06","modified_gmt":"2018-12-03T13:28:06","slug":"the-fed-explains-the-rate-hikes-to-prevent-financial-crisis-2","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=41214","title":{"rendered":"The Fed Explains the Rate Hikes: To Prevent Financial Crisis 2"},"content":{"rendered":"<header>\n<h3 class=\"entry-title\"><a href=\"https:\/\/wolfstreet.com\/2018\/12\/02\/the-fed-explains-why-its-raising-rates-to-prevent-financial-crisis-2\/\">The Fed Explains the Rate Hikes: To Prevent Financial Crisis 2<\/a><\/h3>\n<\/header>\n<div class=\"entry-content\">\n<p><strong>Instead of \u201cbubble\u201d or \u201ccollapse,\u201d it uses \u201cvaluation pressures\u201d and \u201cbroad adjustment in prices.\u201d Business debt, not consumer debt, is the bogeyman this time.<\/strong><\/p>\n<p>Preventing another financial crisis \u2013 or \u201cpromoting financial stability,\u201d as the Federal Reserve Board of Governors calls it \u2013 isn\u2019t the new third mandate of the Fed, but a \u201ckey element\u201d in meeting its dual mandate of full employment and price stability, according to the Fed\u2019s first <a href=\"https:\/\/www.federalreserve.gov\/publications\/files\/financial-stability-report-201811.pdf\" target=\"_blank\" rel=\"noopener\">Financial Stability Report<\/a>.<\/p>\n<p>\u201cAs we saw in the 2007\u201309 financial crisis, in an unstable financial system, adverse events are more likely to result in severe financial stress and disrupt the flow of credit, leading to high unemployment and great financial hardship.\u201d<\/p>\n<p><strong>Financial firms are OK-ish, except for hedge funds.<\/strong><\/p>\n<p>The largest banks are \u201cstrongly capitalized\u201d and are better able to withstand \u201cshocks\u201d than they were before the Financial Crisis; and \u201ccredit quality of bank loans appears strong, although there are some signs of more aggressive risk-taking by banks,\u201d the Financial Stability Report says.<\/p>\n<p>Also, leverage at broker-dealers is \u201csubstantially below pre-crisis levels.\u201d And \u201cinsurance companies have also strengthened their financial position since the crisis.\u201d<\/p>\n<p>A greater worry are hedge funds that are now being leveraged up to the hilt. \u201cA comprehensive measure that incorporates margin loans, repurchase agreements (repos), and derivatives \u2013 but is only available with a significant time lag \u2013 suggests that average hedge fund leverage has risen by about one-third over the course of 2016 and 2017.\u201d<\/p>\n<p>\u201cThe increased use of leverage by hedge funds exposes their counterparties to risks [that would include banks and broker-dealers] and raises the possibility that adverse shocks would result in forced asset sales by hedge funds that could exacerbate price declines.\u201d<\/p>\n<p>But here is why they won\u2019t get bailed out: \u201cThat said, hedge funds do not play the same central role in the financial system as banks or other institutions.\u201d<\/p>\n<p>\u2026click on the above link to read the rest of the article\u2026<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>The Fed Explains the Rate Hikes: To Prevent Financial Crisis 2 Instead of \u201cbubble\u201d or \u201ccollapse,\u201d it uses \u201cvaluation pressures\u201d and \u201cbroad adjustment in prices.\u201d Business debt, not consumer debt, is the bogeyman this time. Preventing another financial crisis \u2013 or \u201cpromoting financial stability,\u201d as the Federal Reserve Board of Governors calls it \u2013 isn\u2019t [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[63,1806,150,195,303,312,3650,4254,4255],"class_list":["post-41214","post","type-post","status-publish","format-standard","hentry","category-economics","tag-banks","tag-bubble","tag-collapse","tag-debt","tag-fed","tag-financial-crisis","tag-us-federal-reserve","tag-wolf-richter","tag-wolfstreet"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/41214","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=41214"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/41214\/revisions"}],"predecessor-version":[{"id":41215,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/41214\/revisions\/41215"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=41214"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=41214"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=41214"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}