As inflation expectations rise the FED has less and less "wiggle room" to stimulate the economy. But how do you measure "inflation expectations"? In today's article, Chris Ciovacco will show us. ~Tim McMahon, editor Low Inflation Leaves Fed’s No Taper Door Open Fed Lost Control In 2008 In early December, we used Japan as an extreme example of why central banks are terrified of allowing their respective economies to slip into a deflationary spiral. Do the same concepts apply to the United States? They do. The federal government offers standard Treasury bonds (IEF) and Treasuries that provide some protection against inflation (TIP). The law of supply and demand tells us that when demand … [Read more...]
FED Looks for New Ways to Crank Up Money Supply
With all the talk about "Tapering" you'd think the FED was actually considering reducing it's money pumping. But in actuality that is not it at all. The FED is afraid that it is creating a a bubble in the stock market so it is looking for ways to continue its pumping but shift it enough so that the money goes somewhere besides just to the stock market. In other words, it is still worried about the economy and realizes that it is doing more harm than good but feels trapped, so it is looking for new ways that might work better. If the FED can figure out how to free up the log jam of "excess reserves" held by the banks, liquidity could be sloshing around the economy before you know it and … [Read more...]
The FDA Thinks You’re Stupid
I always bristle when I hear that the government is doing something for my own good. Generally, I prefer to decide what's best for me by myself. Obviously, there are exceptions relating to criminal behavior and dishonesty but in most cases, I figure I am a big boy now and I can make my own decisions and take care of myself. In today's article Chris Wood looks at another instance of the Federal Government pushing business around. In this case, it's the FDA. Take a look and decide for yourself if this is where the FDA should be focusing its efforts. ~Tim McMahon, editor. The FDA Thinks You’re Stupid Does the FDA think you're too stupid to have access to your own genetic information? It … [Read more...]
What Causes Unemployment?
I recently received the following question about unemployment from a gentleman in Tanzania and I thought it was a good question and I would share the answer with you. What Causes Unemployment? I have been thinking on that situation of unemployment. Why does the rate of unemployment increase day after day? Does it mean that people have decreased the rate of thinking on creating jobs or there is any other reason? ~ Lioba from Dar-es-Salaam Tanzania. Here is my Response: Lioba, That is a very good question. Unemployment is a function of how efficient the marketplace is. In a purely agricultural economy, there is no unemployment, everyone has to work, if they don't work they don't eat. … [Read more...]
Pushing on a String, Velocity of Money and Money Multiplier Conspire Against the FED
Under certain circumstances such as high national indebtedness, fear of bad economic times or when interest rates approach zero, monetary policy becomes ineffective in enticing consumers into spending more money. Economists refer to this as "Pushing on a String" because if the basic demand doesn't exist to induce people to spend money, it can't be forced through monetary policy. Prime examples of this are during the Great Depression in the United States and in Japan since the 1990s. And as Lacy Hunt explains we are once again facing this problem in the United States since 2008. ~Tim McMahon, editor Federal Reserve Policy Failures Are Mounting By Lacy H. Hunt, Ph.D., Economist The Fed's … [Read more...]
BLS Recovering From Shutdown
The government shutdown is over and the U.S. Bureau of Labor Statistics is recovering from their unscheduled vacation. The United States federal government shutdown of 2013, lasted from October 1 to 17, 2013. Unemployment data for the month of September was due to be released on October 4th i.e. four working days into the shutdown. So the employment data is now scheduled for release on October 22nd. And the Consumer Price Index which is used to calculate the September inflation rate, which was scheduled for release on October 16th is now scheduled for release on October 30th. Although the shutdown inconvenienced vacationers wanting to see National Monuments and the National Zoo, did it … [Read more...]
What’s So Bad about Shutting the Government Down?
It all seems a bit silly. On Monday the National Park Service declared that the open-air Veterans Memorial would be closed during the shutdown. After all they have to prove there is some "pain" involved in shutting down the government. But a bunch of 80-90 year old veterans would have none of it and they tore down the blockades. So the park service made a 180-degree turn and declared their visits now constitute protected “First Amendment activity” . Basically they had no choice, what were they going to do? Shoot the old war heroes? Put them all in jail? It's like a bit of a joke. No their backs are against the wall, somehow they must impress on us common rabble how important the … [Read more...]
Taper Caper: The Consequences of Institutionalizing Q.E.
By Ben Hunt, Ph.D. Previously, we discussed the Bureaucratic Capture of the FED and the institutionalizing of QE. QE is adrenaline delivered via IV drip ... a therapeutic, constant effort to maintain a certain quality of economic life. This may or may not be a positive development for Wall Street, depending on where you sit. I would argue that it’s a negative development for most individual and institutional investors. But it is music to the ears of every institutional political interest in Washington, regardless of party, and that’s what ultimately grants QE bureaucratic immortality. It is impossible to overestimate the political inertia that exists within and around these massive … [Read more...]
Taper Caper: Has the FED Been “Politicized” or “Captured”?
By Ben Hunt, Ph.D. Two things happened this week with the FOMC announcement and subsequent press conferences by Bernanke, Bullard, etc. – one procedural and one structural. The procedural event was the intentional injection of ambiguity into Fed communications. As I’ll describe below, this is an even greater policy mistake than the initial June FOMC meeting when “tapering” first entered our collective vocabulary. The structural event ... which is far more important, far more long-lasting, and just plain sad ... is the culmination of the bureaucratic capture of the Federal Reserve, not by the banking industry which it regulates, but by academic economists and acolytes of government … [Read more...]
The Mystery of the Missing Taper
Taper Caper: Conspiracy Theory Last Thursday, prior to the FOMC announcement, I was invited to come sit with another group of friends and traders everyone was sure there would be some type of tapering. That message had been clearly communicated to the markets. When the announcement came, the telephones went off and everyone erupted with various forms of surprise. I fully admit to being speechless. I kept waiting for some kind of explanation, and none came. The more we talked about it and the more I thought about it later, the more convinced I became that this was one of the more ham-handed policy announcements from the Fed in a very long time. Why would you go to the trouble of getting the … [Read more...]
