Believe it or not, all of them have real answers. Not solutions. Just answers. Hey, you know me. I have doubts about the economy holding up. It is interesting because all my wealthy friends love this but have no idea when I question them of what the Fed is and the problem with debt.
It seems like the tough medicine the economy needed to take and markets have needed for decades stopped today. You have spoken highly of Powell in the past Wolf.
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Perhaps you should rethink. I reported about the problems boiling in the corporate credit markets late last year, with all kinds of things grinding down, including junk bond issuance, which had stopped entirely. This was a REAL tightening of financial conditions, and it was harsh and sudden. It was a snowball rolling downhill that was picking up a lot of momentum very fast. So I think the Fed talked the credit market back off the cliff to mix the metaphors. And that was a good thing, imho. When the credit market freezes up, the Fed tends to go nuts — see Financial Crisis — and then it gets back into experimental monetary policy.
Hope is not enough, because failure is not an option. The really bad news is that the very worst problems only have a derivative connection to finance. Powell has accepted mission impossible in trying to reduce imbalances and unhealthy leverage without crashing markets and sentiment. He really has no choice but to play both sides with Fed speak and policy actions. It makes me think of a sports bookie trying to find the right point spread to get an even number of bets to balance the risk appropriately. To me, the real question is how much real progress can be made on the balance sheet and interest rates before the next recession hits, because their window seems to be closing with little margin for error.
Everything comes to a halt. This was happening during the Financial Crisis. Does this look like a credit market ready to freeze up? Everything bounced starting on Dec See my articles on leveraged loans, for example. Straight line to hell. I agree with the credit market issue. I saw it too, you discussed it, and I figured he would back off. But the economy is big with many facets and I do not understand how all the pieces will come together.
Because the 3 month T-bill rate remained flat since very late november last year. And the market priced this in as it always eventually does. Then the FED raised rates every time the board met. And NOT with 25 basis points but with 50 basispoints. But now in the downward direction. Do you think the fore-mentioned Feds intention to use shorter term treasuries, is a counter, to the Treasury Departments increased issuing of shorter term paper? Sounds like just more jawboning to soothe markets.
Little appears to have changed. QT continues, as advertised, on auto-pilot. Although a full-blown credit crunch might force them to taper QT reverse taper tantrum? On second though, perhaps there is trouble brewing. Anyone notice the Baltic Dry Index? Hmm, not a word about it anywhere. I give it about 2 trading days for long dated bond yields to start rising again and take the shine of any short lived market rally.
For all intensive purposes 2. I do not know why people think QE is dead or has stopped. In the next 5 years, the Fed will buy about The Fed is another GSE, a toxic waste dump for impaired securities. The banks are as well which has prompted some analysts to recommend buying their shares, which I seem to recall was the same pattern with FNM. So it buys more securities than mature, and the balance grows.
So it buys less in securities than mature, or it buys none, and the balance declines. Not sure if I am the only one who think that the world is in dire need of recession. We simply have way too many zombie company around. Over on the blue collar side, there are many zombies working at those companies. To coin a phrase more than accurately quote the situation, Hard to notice a recession during a depression! What is the usual result when people beat on their pans?
It only cares about Mr Market. Market, i. It is now a mistake, he argues, to see economic swings as being tied to the physical economy—everything is capital flows. No government or Fed Board is going to buck the men they are almost all men who have their hands on that spigot.
Explain how student debt slaves who are living much below their previous generations, fit in to all that. Start reading Naked Capitalism everyday. Consider that USD as reserve currency is responsible for the benefits you mention — NOT the ungainly size of the bloated, parasitical financial services sector.
My problem with your analogy is that it posits this as a competition. It is not. The Fed works for the Banks and the brokerages and the people who run and have controlling interest in those institutions. Secondarily, they serve the political elite. The market does — the FED just has to follow. What is your opinion?tornado.burnsforce.com/gua-a-microsoft-2015-por-lawrenceville-prensa.php
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Do you agree? What you worry about is the close range, so one month or so. And this is precisely what happens: once the next rate hike moves into the 3-month window, the 3-month maturities will gradually price it in until it is fully priced in a few weeks before the rate hike happens. All rake hikes by this Fed are telegraphed well in advance to give markets time to catch up. For example, early , I was already saying the Fed would hike rates four times in based on what the Fed was telegraphing, while the markets priced in two rate hikes. But by November , when the fourth rake hike approached, it was fully priced in.
If people want to believe that the Fed just follows the 3-month Treasury yield, that is fine with me, just as it is fine with me if people want to believe that the earth is flat. The Taper Tantrum is a more recent episode of the Fed surprising the markets. There are more examples from other countries as well. But the Fed is also not totally independent; sometimes it can be constrained by political forces and by persuasion.
But anyone who says that the market forces the Fed around and uses as evidence the sequence of market vs. The fed controls the money supply, and therefore it controls the price of money. However there is a boundary where money meets the real world economy, where fed control is understood to be outside of that economy. The idea of top town control is a perception that has to be accepted, and the fed knows this and so plans its activity on acceptance. In that sense the fed does set rates according to what it perceives the market will accept, using its own guidelines of inflation or employment as aim.
The obvious example which lies at an extreme is loss of faith in a currency, where catch up in money supply by a central bank results in hyperinflation — you cannot deny that in that scenario the central bank is following market valuation and attempting to meet real wages of say government employees, or fx value on foreign debt. It could be said that that scenario was a purposeful scheme by a central bank, which I suppose would just underline that they actually never have any real control and are just arbitrary institutions of influence.
The other extreme would be to make money incredibly difficult to come by, but that would also result in loss of faith in the institutions that enforce currency, resulting in the like of dollar auctions. If bankers did not control the money supply, but were only responsible for correctly allocating it at eventual productive profit or loss , the equation would be very different. We cannot, and nor can the fed or government.
I am not sure reality really works that way, or that that is no more than man playing at being creator. They went from 4 potential hikes to zero in a matter of one quarter, and now the balance sheet runoff is questionable. The Fed is just as incompetent, clueless, and out of touch with the real economy as it ever was.
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Spot on. Every word. I think many forget we went from 4 hikes to zero in 2 months time, with the economic data NOT supporting or rationalizing such an abrupt policy change. There is no data dependency. The Fed is a complete and utter farce. There was a lot of data in the credit markets to support that change in policy. Credit was beginning to freeze up for riskier companies.
Junk bond issuance completely dried up. Spreads suddenly blew out. But they happened in a span of weeks. That was very fast. If that had continued for a few more months at that pace, all heck would have broken loose. Let the meek and lowly non debt-pigs inherit the earth Did the Fed identify a root cause of this credit freeze for riskier companies?
Pretty big change if this happens. Besides the debt limit needs to be voted on. On the other hand, there are a lot of excesses, and they need to be wrung out of the system. That right there is the indication that the financial system has no life in it. We read all these articles about how the fed did a great job and the system is up and running. If so, why all this circumlocution?
That means none of their tricks worked. Bloomberg stated yesterday that the federal funds rate turned positive putting it slightly above inflation for the first time in a long time. It looks like the Powell Fed found and crossed the zero line. How do you hit a future moving target when all you know is where it was in the past? As for the balance sheet it is definitely influencing Wall Street. These guys fear the balance sheet run off more than Superman fears Kryptonite.
It was my understanding that the excess reserves where there to handle future potential non performing assets and to maintain the banks liquidity if a surge in defaults occurred. It sounds to me like the the Fed still sees the possibility that some past problem assets are still in the system and may need to get rung out gradually.
When the Fed started increasing the federal funds rate this may have brought some of them to the surface so to speak. If you check the January 24, H. The year rate is back at 2. The US must be getting all the surplus money from every country in the world. Western europe is sending all their cash here…. When europe implodes it will start the domino effect…. We got another oil bust going on right now that is working its way into the inflation figures bringing them down.
This even made its way into the press conference.
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And it collapsed in Q4 We can all expect a positive surprise in the coming weeks or months regarding the cessation of the QE Roll-off. While the FED loudly telegraphs negative news, it does not hesitate to surprise the market with positive developments such as the likely ,soon to be tamed, QE roll-offs. Lever up the margin and party on! It also said it might say how it will tweak the mix of the balance sheet, such as bringing down its average maturity and getting rid of MBS entirely.
That would require a tweaking of how the autopilot flies that plane. And these changes are likely not favored by the markets. So, how bad are things, really? What are the true underlying risks here? Is there any way of determining the fair value of financial assets? It seems so many sad folks are in debt to their eyeballs. This is nuts! We are truly down the rabbit hole.
You answered your own question. Monetary policy is like quicksand. Once you are in it, you are stuck in it. If you try yo get out of it Ie tighten and raise rates you sink faster. Raising rates becomes unsustainable, as it creates enormous drag on the debt laden economy in the form of higher interest expense. Eventually long term real economic growth and productivity slowly succumb to the gravity effects of excessive leverage and one is left with a very fragile economy that is highly susceptible to any sort of rate shocks, even mild ones.
Inflation would be the deathblow to such an economy. Luckily we are in a global deflationary environment as of today. Malpractice by the Fed. So what? Apple does not manufacture in the US. It has little connection to the real economy. Facebag posted record profit today. Snapcrap still multi-billion dollar company. Fed reconsidering QE, see next article. Powell is doing a fantastic job staying data dependent and acting accordingly.
The policy rate is now neutral, inflation is very low and unemployment is about as low as it can go. The US is in a good place economically, and the Fed has pushed interest rates are about as high as they can go given systemic deflationary forces that will continue to act. Sitting in Treasuries or gold will continue to be a losing proposition in It sure does feel like Jay Powell is making it up to Mr.
Market … after freaking it out in December. So, Jay Powell, if you are reading this, i have just made your forecasting job easier and you can go ahead and lay off all your magic modelling PHD Econometricians in the Eccles building. So far this year gold has not been a losing proposition. Even the moribund mining stocks are going up and they have not participated in any other gold rallies recently.
If Powell fails, we will get a very quick reversion to the mean, and a possible re-definition of our democracy via the elections. There is so much more at risk than just k balances, and Powell understands this. Others, however, began to question whether Parliament did have lawful power to legislate over the colonies.
These doubts were expressed by the late s, when James Wilson , a Scottish immigrant lawyer living in Philadelphia , wrote an essay on the subject.
Because of the withdrawal of the Townshend round of duties in , Wilson kept this essay private until new troubles arose in , when he published it as Considerations on the Nature and Extent of the Legislative Authority of the British Parliament. To this Otis snorted that, if the majority of the British people did not have the vote, they ought to have it.
The standpoints of the two sides to the controversy could be traced in the language used. The principle of parliamentary sovereignty was expressed in the language of paternalistic authority; the British referred to themselves as parents and to the colonists as children. The colonists replied to all this in the language of rights. They held that Parliament could do nothing in the colonies that it could not do in Britain because the Americans were protected by all the common-law rights of the British.
When the First Continental Congress met in September , one of its first acts was to affirm that the colonies were entitled to the common law of England. And here he touched on the underlying source of colonial grievance. Americans were being treated as unequals, which they not only resented but also feared would lead to a loss of control of their own affairs.
Townshend specifically legalized writs of assistance in the colonies in Dickinson devoted one of his Letters from a Farmer to this issue. When Lord North became prime minister early in , George III had at last found a minister who could work both with himself and with Parliament. British government began to acquire some stability. In , in the face of the American policy of nonimportation, the Townshend tariffs were withdrawn—all except the tax on tea, which was kept for symbolic reasons.
Relative calm returned, though it was ruffled on the New England coastline by frequent incidents of defiance of customs officers, who could get no support from local juries. These outbreaks did not win much sympathy from other colonies, but they were serious enough to call for an increase in the number of British regular forces stationed in Boston. One of the most violent clashes occurred in Boston just before the repeal of the Townshend duties.
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Threatened by mob harassment, a small British detachment opened fire and killed five people, an incident soon known as the Boston Massacre. The soldiers were charged with murder and were given a civilian trial, in which John Adams conducted a successful defense. The other serious quarrel with British authority occurred in New York , where the assembly refused to accept all the British demands for quartering troops.
Before a compromise was reached, Parliament had threatened to suspend the assembly. The episode was ominous because it indicated that Parliament was taking the Declaratory Act at its word; on no previous occasion had the British legislature intervened in the operation of the constitution in an American colony.
Such interventions, which were rare, had come from the crown. The Tea Act gave the company, which produced tea in India, a monopoly of distribution in the colonies. The company planned to sell its tea through its own agents, eliminating the system of sale by auction to independent merchants. By thus cutting the costs of middlemen, it hoped to undersell the widely purchased inferior smuggled tea. This plan naturally affected colonial merchants, and many colonists denounced the act as a plot to induce Americans to buy—and therefore pay the tax on—legally imported tea.
Boston was not the only port to threaten to reject the casks of taxed tea, but its reply was the most dramatic—and provocative. American merchants in other cities were also disturbed. Property was property. In the spring of , with hardly any opposition, Parliament passed a series of measures designed to reduce Massachusetts to order and imperial discipline. The port of Boston was closed, and, in the Massachusetts Government Act , Parliament for the first time actually altered a colonial charter, substituting an appointive council for the elective one established in and conferring extensive powers on the governor and council.
The famous town meeting , a forum for radical thinkers, was outlawed as a political body. To make matters worse, Parliament also passed the Quebec Act for the government of Canada. In addition, Upper Canada i. There was widespread agreement that this intervention in colonial government could threaten other provinces and could be countered only by collective action. After much intercolonial correspondence, a Continental Congress came into existence, meeting in Philadelphia in September Every colonial assembly except that of Georgia appointed and sent a delegation.
Jefferson insisted on the autonomy of colonial legislative power and set forth a highly individualistic view of the basis of American rights. This belief that the American colonies and other members of the British Empire were distinct states united under the king and thus subject only to the king and not to Parliament was shared by several other delegates, notably James Wilson and John Adams , and strongly influenced the Congress.
The decision to vote by colony was made on practical grounds—neither wealth nor population could be satisfactorily ascertained—but it had important consequences. Individual colonies, no matter what their size, retained a degree of autonomy that translated immediately into the language and prerogatives of sovereignty. Apart from this, however, the prevailing mood was cautious. The Congress thus adopted an Association that committed the colonies to a carefully phased plan of economic pressure, beginning with nonimportation, moving to nonconsumption, and finishing the following September after the rice harvest had been exported with nonexportation.