‘There’s A Problem Here That Smacks Of Inevitability’: Recession Or No, The Fed Has To Cut Rates Aggressively
President Trump is caught in an insanity loop when it comes to the dollar. He is, it seems, at least somewhat aware of his plight.
Despite being cognizant of the fact that, in one way or another, his own policies and actions are responsible for persistent dollar strength, Trump refuses to relent on any front. The White House would have more fiscal stimulus if the administration could push it through, Trump refuses to deescalate the trade conflict which is exacerbating the economic disparity bet
Whoa there, it seems that one big reason rates are screaming in a crash-like fashion, is because there is a huge amount of risk out there, not unlike 2005 or so. Rates crash when people want super liquidity and want short-term securities. At this point, rate cuts are pointless, because the cat is very obviously out if the bag looking at the genie who’s also outside the bottle, and cat and genie are both wondering how to put perfume molecules back into the broken bottle. A rate cut will not stimulate the economy or save it or make trump look like a genius. We saw what happened with massive quantitative easing, after rates crashed, and, as you may recall, it took about 10 years to re-set the punch bowl and re-start the party. The main problem the Fed had last year, was to believe they had to build-up rates and prepare for a future recession, and while they were totally focused on that micro objective, they misread the macro data and should have cut last year. The Fed has basically covered the ground with jet fuel and trump flings matches.
Amazing how things have changed. This would never have been even thought of before. And if so, no on would have ever mentioned it least be laughed out of the business. The scares of the GFC remain. Thank you Bernanke for leaving us this legacy.
The fed fund rate is 2.25%. At the end of the longest economic expansion in American history, with the unemployment figure at a decades low rate, with the stock market about 5% from record highs.
2.25%.
And this is too tight, because it is higher than in Japan and Europe. So the Fed cuts. You know what will happen after the Fed cuts? It will still be higher than Japan and Europe. I promise. You know why? Because the rates in Japan and Europe are negative. And the ECB and BoJ still have room to cut.
So should the Fed cut, what, 350 basis points? 500? To prevent “disinflation?” Because the economy, in this, the “good times” has obviously made the people very happy. You can tell by our politics. Left-wingers and right-wingers are united in joy in what the gig economy has wrought with flat wages, debt, and unaffordable university and medical costs. Life expectancy is going down, in this, the wealthiest country in the history of the world. Most Americans cannot cover an emergency $400 expense out of pocket. Half of all Americans have precisely $0 saved for retirement. Many people have so little faith and credit in their money that they would rather swap them out in their thousands to gamble on inherently worthless digital tokens.
And the remedy for this, is to tempt inflation because what people who have no exposure to the stock market and have negative wealth need is higher prices. Maybe that will spur them to invest in risk assets…
And this advice comes from Deutsche Bank? A criminal organization that is on the verge of bankruptcy?
Anyway, we have tried this. Rates were kept at 0% for a decade, and it resulted in the weakest economic expansion ever. They have tried this in Japan and Europe for decades. It is not working. It will not work at 1.75%. It will not work at (1.75%). We have to recognize that maybe the gangster institutions that launder money for drug lords, terrorists, and mafiosi may not have the public interest in mind. Maybe they want lower transaction costs for themselves and access to cheap money to keep their racketeering operations afloat.
The whole thing about importing deflation is a bit overblown. Look at the CPI, what is holding it up services, shelter, medical… not goods. Not that tumbling goods won’t effect it, sure it will. But the Phillips curve appears to be still breathing in services and that still might bite the Fed https://www.youtube.com/watch?v=jYcPBE5PXhs
CPI is a pointless exercise in stupidity, take a look a the methodology behind that farce, e.g. learn about Homescan; there are many reports on how flawed that data is and the method used to collect noise:
We focus on recording errors in prices, which are more prevalent, and show that they can be classified to two categories, one due to standard recording errors, while the other due to the way Nielsen constructs the price data. We then show how the validation data can be used to correct the impact of recording errors on estimates obtained from Nielsen Homescan data. We use a simple application to illustrate the impact of recording errors as well as the ability to correct for these errors. The application suggests that while recording errors are clearly present, and potentially impact results, corrections, like the one we employ, can be adopted by users of Homescan data to investigate the robustness of their results.
https://www.nber.org/papers/w14436
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A bad deal is a bad deal no matter how cheap the money. Taking pressure off debtors will help but stop expecting rate cuts to do things they never were particularly adept at doing. The Fed can strengthen the floor. Raise the ceiling? Not so much.
I am trying to think of a previous time the Fed has been forced into cuts or raises by other countries’ actions. Is that common, rare, very rare?
After reading the first six comments here I also tend to strongly disagree with the Message in the title of this post… This is all about a small affected minority trying to save their collective butts and avoid a “pay back reaction ” for the excesses of the past decade in a cascade of illiquidity that is inevitable.. This salvage attempt is not in the name of the people (so to say) as a bulk are bystanders to the goings on in the last cycle. All the manipulating has already be done to try to engineer a happy “Goldilocks ” outcome the system so desires to maintain the status quo of the power base. I doubt the result of a reset will be as catastrophic as has often been predicted by many…except to the most beneficially effected and unfortunately the most vulnerable whom coincidentally are not the ones thriving in the present status quo.
Unfortunately , I see few alternatives to avoid all this and maybe that is what is driving all the rhetoric…
“…in anything that even approximates the kind of precision employed by a Wall Street rates strategists…”
All I really have to say on the big financial data haruspicy is that it is indeed the finest information proctology that can be bought – but one bankster’s metric of Oracle is another analyst’s stochastic Cassandra. The dollar was at a decades abyss during the dot com crash but at an apex during the Great Bush Recession crash.
History and the future are mismatched co-dependents, often….