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Old 01-07-2019, 04:07 PM
Danny B Danny B is online now
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Finance is freaked out by Powell slowly letting the air out of the bubble

A combination of factors has made the FED all-powerful in world financial markets.

Post-WW II, America became a powerhouse of manufacturing and profit. The FED became a de facto global leader because the U.S. dollar was such a stable currency.
Here is Ambrose Evans-Pritchard explaining that things have turned down so bad that the FED and Powell have relented on rate increases.

Acting Man has great graphs showing clearly what is happening.
The Automatic Earth laments the total world control the FED has.

Greenspan, "I never said that the FED is independent"
Previous presidents have always "caused" the FED to goose the economy on THEIR watch. Nobody seems to understand the vacillating that Powell is doing. He said that he will watch the economy VERY carefully. He is doing a controlled reduction of stimulus. He is trying to carefully let the air out of the bubble. Everybody throws rocks at the FED but, it is the State that gives them their marching orders.

"As I said in my 2018 forecast and again last week, I think a Federal Reserve policy mistake is our top risk. That’s less a “forecast” and more a recognition of reality, since the mistake is already happening. The Fed is raising rates and reversing its quantitative easing at the same time. They should be doing one or the other, not both. I think the global balance sheet reduction is especially harmful. I think/hope Jerome Powell will realize this in early 2019. If he doesn’t, or the rest of the FOMC disagrees with him, the year could get very rocky, very quickly.

I’ve been tough on the Fed but I may actually be understating the danger. My friend Chris Whalen described the problem last week. After noting work by economist Zoltan Pozsar, who said QE-created bank reserves aren’t “excess,” Chris wrote (with my bolding):

The obvious points to take from Pozsar’s work are two: First, the FOMC cannot withdraw the liquidity provided to the US financial system via QE without causing the system to implode. Chairman Jerome Powell needs to publicly state that the Bernanke-Yellen inflation in asset prices will entirely reverse as the FOMC tries to reduce “excess reserves” to pre-crisis levels. Regardless of whether the FOMC raises the Fed funds target rate or not, continuing to shrink bank reserves via QT implies a significant reduction in prices for stocks and real estate.

Second and more important, Powell needs to inform Congress that so long as the Treasury intends to run trillion-dollar-plus annual deficits, the Fed’s balance sheet must grow rather than shrink. To have the FOMC try to follow a narrative set in place half a century ago when fiscal deficits were minuscule is obviously impossible given the Treasury’s borrowing needs. This implies that the FOMC must embrace an explicit policy of inflation that is at odds with the legal mandate enshrined in Humphrey-Hawkins."

Historically, finance was about 7% of the economy,,,, even though it produced nothing. It is now about 40%. Here is a graph of GDP minus FED stimulus.
The entire finance sector has become grossly bloated by easy money that has negated ALL price discovery. The entire financial sector is desperate to keep it that way. The money supply inflation that floats the finance sector has caused price inflation in the working economy. Powell is trying to bring a legitimate reduction of the excesses of the finance sector to bring some relief to the non-finance sector. The finance sector doesn't like that one bit.
This isn't entirely correct. The FED has amply demonstrated that is narrowly focused on American markets.
Previously, ALL the CBs did QE to keep any one currency from becoming a safe haven. Under Trump, the FED broke ranks and raised interest rates to let some air out of the credit bubble. The Other CBs reluctantly joined the FED and cut back on their QE. Once again, they did this to forestall capital flight. The ongoing creep of increased socialism was all financed by QE. Trump has slashed at growing socialism by forcing foreign CBs to cut funding for runaway State welfare.
At the same time, the Powell FED is cutting way back on socialist support / funding for banker welfare.

"The Chinese, Japanese and Eurozone slowdown are all happening in the middle of massive stimuli and deficit spending"
Stimulus just can't make up for rising automation / falling employment.
Nobody seems to put the blame where it belongs. The wipeout of wages in the lower loop has created a wipeout in the finance sector.
1/06 Iran’s central bank proposes slashing four zeros from falling currency – GATA
And people wonder why everyone wants to hold dollars.
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