So, the government printing presses (all computerized "money", actually) injected $60 billion make believe bucks into the system this week in order to reinflate the stock and housing markets! What happens next? Wouldn't you like to know!
One of our readers, Frank, left this blog URL at a previous comment section, it is very interesting. From the Cunning Realist, a MBA finance executive:
Today, the stock market rose sharply after the Federal Reserve released the minutes from its December meeting, and investors interpreted those minutes to indicate that interest rate hikes are nearing an end. But something else also happened today. The Federal Reserve increased its level of temporary liquidity to the highest level since 9/11. For those not familiar with the term, liquidity is essentially money created by the Federal Reserve that acts to support various assets such as stocks, bonds and commodities. Today, that pool of liquidity reached a stunning $60 billion, up from $23 billion in mid-December. To be sure, the Fed boosts liquidity at the end of every year, but size of this increase is extraordinary and far greater than any previous year-end.
We are doing the Weimar Republik solution: to pay off our creditors, we print money, so to speak, and then it dissappears into Japan. Meanwhile, the stock market soars thanks to this huge infusion of "cash".
Eventually, we will pay a million for a loaf of bread. Note that the price of every essential this week shot up! Arg.
Would someone please explain how the following scenario does not happen?
Assume: The Fed stop raising rates in March at 4.7%
It appears that at this point the U.S. dollar will start to weaken (this is from both my currency trader friends and what I reading the WSJ). At about the same time we should expect to seasonal demand for oil increase. With both a decrease in the purchasing power of the $ and increase in demand for energy we should expect a nice increase in inflationary pressure. I just dont see how we can have a decrease or halt in rates without a significant drop in the value of the dollar and an increase in inflation.. Please tell me that I am wrong ad why.. Thanks you..
3B - check out Setsers blog... especially this recent entry regarding the three legs of the global currency imbalance... HERE
He covers the story about the flow of funds keeping the current imbalalnces balanced. As long as this situation continues the dollar is likely to stay strong regardless of what the Fed does. In some ways the Fed is as much a spectator as the rest of us.
Is not a tripod one of the least stable of human organized structures?
Actually three legged structures are quite stable if the legs are sound... three points on a plane is the mathmatical minimum required for stability... The problem with three legs is if one leg fails then you only have two and that is like balancing a card on its edge. While stable when all legs are sound there is no redundancy if one should fail.
How accurate that physical analogy is to setsers three pillars of global unbalance can be debated... but regardless his entry is still a very good read.
If you read Bernanke's book "Essays on the Great Depression" you will understand why the Fed is so determined to avoid deflation.
Because the insistence of the Chinese and Japanese on keeping their exports cheap by suppressing their currencies imposes a fundamental deflationary drag on US prices, the Fed undoubtedly sees itself as having no choice but to pump out enough dollars to overcome that drag.
As long as the Asians keep building more and more export capacity to soak up those dollars, and keep recycling them back to us to fuel more buying, the Fed will have to keep growing the money supply to ward off deflation.
But that doesn't mean the Fed's going to send us into a Weimar-style hyperinflation. Bernanke has also published a book entitled "Inflation Targeting", and it's quite clear he intends to try to constrain inflation within a slightly positive range just high enough to prevent deflationary collapse.
Note that my second and third paragraphs above are my speculations, and not directly based on anything in Bernanke's book.
Everyone's guessing - even the so called experts. Yours are as welcomed as any as far as I'm concerned...
My biggest concern with the game the FED & Asian CB's are playing is if they are 'pushing hard' on each other... what if one gives. Then both go flying ass over tea kettle.
Plus I still think it is possible to have inflation of raw materials due to physical scarcity but deflation of wages & margins due to global over capacity of valued added conversion of those raw materials into 'products'... the final CPI numbers being far more muted... with the FED & other CBs trying to figure out what to do about this potentially schizo economic disorder.
Or what about the General's note on Korea's re-entry to the tbill market? Private foreign investors seem to be able to manipulate pcbs, yes? Korea's currency gained ~2% in the last month forcing their central bank to supplement their already substantial US reserves to keep their export-led economy from ebbing.
Need a strong dollar? (Don't ask Snowbrows) or continued foreign support of an artifically strong dollar? The latter does not bode well for US trade balances and the former needs to be founded on something other than distributing the products/services of other economies(currencies).
It looked like interest rates would have to increase to attract foreign investment, but now it looks like foreign currencies can be manipulated to coerce fcbs into buying tbills. (Someone has to get stuck with those miserable ROI, yes?) So it looks like the flattening yield curve will continue in this brave new world.
"Mortgage equity withdrawal to decrease significantly and impact consumer spending (like what happened in England)"
AAAAHHH!
It may have happened in England, but also happened in Wales, Scotland and Northern Ireland. So maybe as a convenient short hand we could say: (like what happened in the UK).
Um, look at my cartoon about this stuff!
So, the government printing presses (all computerized "money", actually) injected $60 billion make believe bucks into the system this week in order to reinflate the stock and housing markets! What happens next? Wouldn't you like to know!
One of our readers, Frank, left this blog URL at a previous comment section, it is very interesting. From the Cunning Realist, a MBA finance executive:
Today, the stock market rose sharply after the Federal Reserve released the minutes from its December meeting, and investors interpreted those minutes to indicate that interest rate hikes are nearing an end. But something else also happened today. The Federal Reserve increased its level of temporary liquidity to the highest level since 9/11. For those not familiar with the term, liquidity is essentially money created by the Federal Reserve that acts to support various assets such as stocks, bonds and commodities. Today, that pool of liquidity reached a stunning $60 billion, up from $23 billion in mid-December. To be sure, the Fed boosts liquidity at the end of every year, but size of this increase is extraordinary and far greater than any previous year-end.
We are doing the Weimar Republik solution: to pay off our creditors, we print money, so to speak, and then it dissappears into Japan. Meanwhile, the stock market soars thanks to this huge infusion of "cash".
Eventually, we will pay a million for a loaf of bread. Note that the price of every essential this week shot up! Arg.
Would someone please explain how the following scenario does not happen?
Assume: The Fed stop raising rates in March at 4.7%
It appears that at this point the U.S. dollar will start to weaken (this is from both my currency trader friends and what I reading the WSJ). At about the same time we should expect to seasonal demand for oil increase. With both a decrease in the purchasing power of the $ and increase in demand for energy we should expect a nice increase in inflationary pressure. I just dont see how we can have a decrease or halt in rates without a significant drop in the value of the dollar and an increase in inflation.. Please tell me that I am wrong ad why.. Thanks you..
3B - check out Setsers blog... especially this recent entry regarding the three legs of the global currency imbalance... HERE
He covers the story about the flow of funds keeping the current imbalalnces balanced. As long as this situation continues the dollar is likely to stay strong regardless of what the Fed does. In some ways the Fed is as much a spectator as the rest of us.
Is not a tripod one of the least stable of human organized structures?
Is not a tripod one of the least stable of human organized structures?
Actually three legged structures are quite stable if the legs are sound... three points on a plane is the mathmatical minimum required for stability... The problem with three legs is if one leg fails then you only have two and that is like balancing a card on its edge. While stable when all legs are sound there is no redundancy if one should fail.
How accurate that physical analogy is to setsers three pillars of global unbalance can be debated... but regardless his entry is still a very good read.
If you read Bernanke's book "Essays on the Great Depression" you will understand why the Fed is so determined to avoid deflation.
Because the insistence of the Chinese and Japanese on keeping their exports cheap by suppressing their currencies imposes a fundamental deflationary drag on US prices, the Fed undoubtedly sees itself as having no choice but to pump out enough dollars to overcome that drag.
As long as the Asians keep building more and more export capacity to soak up those dollars, and keep recycling them back to us to fuel more buying, the Fed will have to keep growing the money supply to ward off deflation.
But that doesn't mean the Fed's going to send us into a Weimar-style hyperinflation. Bernanke has also published a book entitled "Inflation Targeting", and it's quite clear he intends to try to constrain inflation within a slightly positive range just high enough to prevent deflationary collapse.
Note that my second and third paragraphs above are my speculations, and not directly based on anything in Bernanke's book.
Nice cartoon, Elaine.
You should do one about all the crooks in Congress. There is no end to them.
I am with Elaine and bbb on this one, dryfly. All signs point to an end of dollar strength.
At some point, we will see the straw that broke not only the camel's back but also your three-legged stool.
Won't take much. The Fed's latest move may be such a straw.
Note that my second and third paragraphs above are my speculations, and not directly based on anything in Bernanke's book.
Everyone's guessing - even the so called experts. Yours are as welcomed as any as far as I'm concerned...
My biggest concern with the game the FED & Asian CB's are playing is if they are 'pushing hard' on each other... what if one gives. Then both go flying ass over tea kettle.
Plus I still think it is possible to have inflation of raw materials due to physical scarcity but deflation of wages & margins due to global over capacity of valued added conversion of those raw materials into 'products'... the final CPI numbers being far more muted... with the FED & other CBs trying to figure out what to do about this potentially schizo economic disorder.
All signs point to an end of dollar strength.
Probably right stormy.
Off current topic but on subject of this blog: Take a look over at Mark Thoma's blog and read about the Shanghai housing market. Interesting.
Or what about the General's note on Korea's re-entry to the tbill market? Private foreign investors seem to be able to manipulate pcbs, yes? Korea's currency gained ~2% in the last month forcing their central bank to supplement their already substantial US reserves to keep their export-led economy from ebbing.
Need a strong dollar? (Don't ask Snowbrows) or continued foreign support of an artifically strong dollar? The latter does not bode well for US trade balances and the former needs to be founded on something other than distributing the products/services of other economies(currencies).
It looked like interest rates would have to increase to attract foreign investment, but now it looks like foreign currencies can be manipulated to coerce fcbs into buying tbills. (Someone has to get stuck with those miserable ROI, yes?) So it looks like the flattening yield curve will continue in this brave new world.
"Mortgage equity withdrawal to decrease significantly and impact consumer spending (like what happened in England)"
AAAAHHH!
It may have happened in England, but also happened in Wales, Scotland and Northern Ireland. So maybe as a convenient short hand we could say: (like what happened in the UK).
Rant over.
China is, as I correctly forecast, cutting back on EXPORTING because they are scared of a peasant rebellion and now will spend money at home.
This leaves only Japan to hold up our sagging mess.