Category Archives: Central Banks

Jawbone Janet

Yellen: Fed’s ‘extraordinary aid to last for some time

Yellen also provided three real-life examples of people impacted by the jobs crisis, and emphasized that “although we work through financial markets, our goal is to help Main Street, not Wall Street.”

Oh really?  So what, you plan to back this up by employing more of the policy (ZIRP) that has benefited Wall Street so well over the last 5+ years, at the tragic expense of Grandma?  Taper?  Why, tapering is another positive for Wall Street.  At least the investment and commercial banks.  Hold ZIRP + Taper QE = Theoretical Carry Trade Spread.  Janet, please; do you think we are simpletons?

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Is the Yield Curve Really Flattening?

There is a lot of talk now about a flattening of the yield curve.  This talk has been among the most intense right here at the website you are reading at this moment.  A flattening curve is commonly viewed as bad for gold, and according to Mark Hulbert, is an indicator of a coming recession.

Why you should care about the yield curve

But is the curve really flattening or is this all hype based on Janet Yellen’s press conference comments?  Here is a chart the likes of which we have been using in NFTRH for many months now, the 30 year vs. the 5 year yield.

30.5

MarketWatch shows a similar chart in its article…

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How the Fed is Hurting Seniors

MarketWatch has a nice article clearly laying out the ways that Grandma’s savings are compromised by monetary policy designed to bail out borrowers and reward speculators at the expense of people just trying to live by the old rules.

How the Fed is hurting seniors

Let’s be honest and call ZIRP what it is; an immoral manifestation of modern finance that rewards banks, inside players and speculators that jump on board for the ride.  This is why I have to laugh (or cry) every time some bull wise guy tries to legitimize the bullish atmosphere as being something normal or moral.

It is not.  It was created by decree of man to the enrichment of some and the detriment of many.  Other than that I have no strong opinions on the matter.

ZIRP Up Next?

Everyone expects Janet Yellen to be a rolling over, inflationist stooge just like they did Ben Bernanke.  Bernanke came on board after Alan Greenspan had taken the Fed Funds rate up to around 5% if I remember correctly.  Inflationists and gold bugs thought they had it in the bag when ‘Helicopter Ben’ assumed control.

Indeed, Bernanke did what he was supposed to do (per the ‘Helicopter ‘Ben’ script) as systemic stresses began to gather in 2007, addressing that pesky Funds rate, culminating in December, 2008′s official ZIRP (zero interest rate policy).  Here again is the chart showing the S&P 500′s ‘Hump #3′ attended by this most beneficial monetary policy.

spx.irx

As noted again and again, the much trumpeted ‘taper’ of QE is not only not a negative for the economy, we have made a strong case that its mechanics are actually a positive, in the near term at least.  But putting ZIRP on the table would be a whole different ball of wax.

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FOMC

  • We want more inflation; it’s better for the economy
  • Taper continues as expected, it’s a non issue [my view]
  • We don’t dare mess with ZIRP…

The Committee continues to anticipate, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored.

When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.

Full statement from FOMC

Post Crimea, FOMC Meeting Next

The HUI Gold Bugs index got Ukrained to the extent that global crisis hype seeped into this market leading into the weekend.  The S&P 500 got Ukrained the other way as people actually acted as if the Crimea question is a macro fundamental.

hui.spx

I think after today the books are square on Ukraine but not yet the FOMC meeting, which will provide another hype opportunity.  Will they or won’t they ruminate about an eventual hike to the anti-Grandma Fed Funds rate, AKA ZIRP?

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‘Taper Pace May be Too Slow’ –Plosser

Plosser: Taper Pace May be Too Slow

My second favorite Bad Cop says…

“We must back away from increasing the degree of policy accommodation in a manner commensurate with an improving economy,” Plosser told a panel in Paris. “Reducing the pace of asset purchases in measured steps is moving in the right direction, but the pace may leave us well behind the curve if the economy continues to play out according to the FOMC forecasts.”

Especially since they are not actually withdrawing policy.  All tapering does is provide implied profit margin for banks and lenders, considering Fed Funds are held near 0% and the implied spread to longer term lending rates.

“If the economy continues to improve, we could find ourselves still trying to increase accommodation in an environment in which history suggests that policy should perhaps be moving in the opposite direction,” Plosser said.

Plosser is telling us, in not so many words, exactly what I have been claiming; as long as ZIRP is held, we are INCREASING accommodation, not decreasing it.  The ‘taper’ hype is just that, hype.

Now I wonder why he does not just outright mention ZIRP?  They want to tame the permissive bubble making policy?  Do a surprise rate hike on the Fed Funds.

A nation hopped up on greed moves forward with the media obsessed on QE’s declining asset purchases and still nobody’s making a peep about the real inflation, which is where money is lent to financial institutions at 0% at the expense of Grandma, our kids and any other would-be savers.

I’d like to think the Bad Cops are sincere, but until they start to speak directly about ZIRP I have to believe they are just part of a media campaign designed to give the impression that there is some kind of debate about tightening policy.  I’ve said it before and I’ll say it again, as long as ZIRP is held they are inflating.  Period.

Biiwii.com

This is a Test…

The saying goes that every new Fed Chair is tested (but good) upon taking the reins.  In order for that test to come about, it seems that more often than not the previous Fed Chief will have been withdrawing at least some of the particular policy (Greenspan:  Easy Fed Funds for Easy Al, Bernanke:  Easy Fed Funds/ZIRP & QE bond buying) that had made them look like heroes to so many during their tenure.  Here, have a look…

irx

Greenspan was withdrawing the post-dot.com bubble policy that had created a massive credit bubble when poor Ben Bernanke took over.  Ben’s Waterloo was the 2008 crash.  Enter ZIRP and QE to da moon.  Now, a withdrawal of some of that for poor Janet.  One wonders what her inflation is going to look like after whatever her baptismal event will be.

End of an Era

Guest Post by Doug Noland

Bernanke chairs his final FOMC meeting.

I hope to at some point offer a more complete review of Ben Bernanke’s tenure at the Federal Reserve. I will be fascinated to see how future historians view the Bernanke doctrine. From my perspective, the Bernanke Era has been an abject failure. He was the most outspoken proponent of post-tech Bubble reflation. The noted academic was keen to use the government printing press – not to mention mortgage Credit – to fatefully drive asset inflation and stimulate a particularly unbalanced U.S. economic boom. I will give him less than zero Credit for then inciting an even greater Bubble, again in the name of system reflation, after the 2008 crisis.

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