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Posts Tagged ‘Fed’

The Ron Paul Institute for Peace and Prosperity : Can the Fed End Racism?

Posted by M. C. on October 14, 2020

Supporters of this scheme say that inflation raises wages and creates new job opportunities for those at the bottom of the economic ladder. However, these wage gains are illusory, as wages rarely, if ever, increase as much as prices. So, workers’ real standard of living declines even as their nominal income increases.

http://www.ronpaulinstitute.org/archives/featured-articles/2020/october/12/can-the-fed-end-racism/

Written by Ron Paul

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House Financial Services Chair Maxine Waters and Senator Elizabeth Warren have introduced the Federal Reserve Racial and Economic Equity Act. This legislation directs the Federal Reserve to eliminate racial disparities in income, employment, wealth, and access to credit.

Eliminating racial disparities in access to credit is code for forcing banks and other financial institutions to approve loans based on the applicants’ race, instead of based on their income and credit history. Overlooking poor credit history or income below what would normally be required to qualify for a loan results in individuals ending up with ruinous debt. These individuals will end up losing their homes, cars, or businesses because banks disregarded sound lending practices in an effort to show they are meeting race-based requirements.

Forcing banks to make loans based on political considerations damages the economy by misallocating resources. This reduces economic growth and inflicts more pain on lower-income Americans.

The Carter-era Community Reinvestment Act has already shown what happens when the government forces banks to give loans to unqualified borrowers. This law played a significant role in the housing boom and subsequent economic meltdown. The Federal Reserve Racial and Economic Equity Act will be the Community Reinvestment Act on steroids.

This legislation also requires the Fed to shape monetary policy with an eye toward eliminating racial disparities. This adds a third mandate to the Fed’s current “dual mandate” of promoting a stable dollar and full employment.

Federal Reserve Chair Jerome Powell has already publicly committed to using racial disparities as an excuse to continue the Fed’s current policy of perpetual money creation. Since inflation occurs whenever the Fed creates new money, Powell and his supporters want a policy of never-ending inflation.

Supporters of this scheme say that inflation raises wages and creates new job opportunities for those at the bottom of the economic ladder. However, these wage gains are illusory, as wages rarely, if ever, increase as much as prices. So, workers’ real standard of living declines even as their nominal income increases. By contrast, those at the top of the income ladder tend to benefit from inflation as they receive the new money — and thus an increase in purchasing power — before the Fed’s actions cause a general rise in the price level. The damage done by inflation is hidden and regressive, which is part of why the inflation tax is the most insidious of all taxes.

When the Fed creates new money, it distorts the market signals sent by interest rates, which are the price of money. This leads to a bubble. Many people who find well-paying jobs in bubble industries will lose those jobs when the bubble inevitably bursts. Many of these workers, and others, will struggle because of debt they incurred because they listened to “experts” who said the boom would never end.

The Federal Reserve’s manipulation of the money supply lowers the dollar’s value, creates a boom-and-bust business cycle, facilitates the rise of the welfare-warfare state, and enriches the elites, while impoverishing people in the middle and lower classes. Progressives who want to advance the wellbeing of people in the middle and lower classes should stop attacking free markets and join libertarians in seeking to restore a sound monetary policy, The first step is to let the people know the full truth about the central bank by passing the Audit the Fed bill. Once the truth about the Fed is exposed, a critical mass of people will join the liberty movement and force Congress to end the Fed’s money monopoly.


Copyright © 2020 by RonPaul Institute. Permission to reprint in whole or in part is gladly granted, provided full credit and a live link are given.


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In Unprecedented Monetary Overhaul, The Fed Is Preparing To Deposit “Digital Dollars” Directly To “Each American” | Zero Hedge

Posted by M. C. on September 24, 2020

In short, ever since the Fed launched QE and NIRP, it has been making the situation it has been trying to “fix” even worse while blowing the biggest asset price bubble in history.

https://www.zerohedge.com/markets/loretta-mester-hints-fed-preparing-deposit-digital-dollars-directly-each-american

 

Over the past decade, the one common theme despite the political upheaval and growing social and geopolitical instability, was that the market would keep marching higher and the Fed would continue injecting liquidity into the system. The second common theme is that despite sparking unprecedented asset price inflation, prices as measured across the broader economy – using the flawed CPI metric and certainly stagnant worker wages – would remain subdued (as a reminder, the Fed is desperate to ignite broad inflation as that is the only way the countless trillions of excess debt can be eliminated and has so far failed to do so).

The Fed’s failure to reach its inflation target – which prompted the US central bank to radically overhaul its monetary dogma last month and unveil Flexible Average Inflation Targeting (or FAIT) whereby the Fed will allow inflation to run hot without hiking rates – has sparked broad criticism from the economic establishment, even though as we showed in June, deflation is now a direct function of the Fed’s unconventional monetary policies as the lower yields slide, the lower the propensity to spend. In other words, the harder the Fed fights to stimulate inflation, the more deflation and more saving it spurs as a result (incidentally this is not the first time this “discovery” was made, in December we wrote “One Bank Makes A Stunning Discovery – The Fed’s Rate Cuts Are Now Deflationary“).

 

In short, ever since the Fed launched QE and NIRP, it has been making the situation it has been trying to “fix” even worse while blowing the biggest asset price bubble in history.

And having recently accepted that its preferred stimulus pathway has failed to boost the broader economy, the blame has fallen on how monetary policy is intermediated, specifically the way the Fed creates excess reserves which end up at commercial banks instead of “tricking down” all the way to the consumer level.

To be sure, in the aftermath of the covid pandemic shutdowns the Fed has tried to short-circuit this process, and in conjunction with the Treasury it has launched “helicopter money” which has resulted in a direct transfer of funds to US corporations via PPP loans, as well as to end consumers via the emergency $600 weekly unemployment benefits which however are set to expire unless renewed by Congress as explained last week, as Democrats and Republicans feud over which fiscal stimulus will be implemented next.

And yet, the lament is that even as the economy was desperately in need of a massive liquidity tsunami, the funds created by the Fed and Treasury (now that the US operates under a quasi-MMT regime) did not make their way to those who need them the most: end consumers.

Which is why we read with great interest a Bloomberg interview with two former Fed officials: Simon Potter, who led the Federal Reserve Bank of New York’s markets group i.e., he was the head of the Fed’s Plunge Protection Team for years, and Julia Coronado, who spent eight years as an economist for the Fed’s Board of Governors, who are among the innovators brainstorming solutions to what has emerged as the most crucial and difficult problem facing the Fed: get money swiftly to people who need it most in a crisis.

 

The response was striking: the two propose creating a monetary tool that they call recession insurance bonds, which draw on some of the advances in digital payments, which will be wired instantly to Americans.

As Coronado explained the details, Congress would grant the Federal Reserve an additional tool for providing support—say, a percent of GDP [in a lump sum that would be divided equally and distributed] to households in a recession. Recession insurance bonds would be zero-coupon securities, a contingent asset of households that would basically lie in wait. The trigger could be reaching the zero lower bound on interest rates or, as economist Claudia Sahm has proposed, a 0.5 percentage point increase in the unemployment rate. The Fed would then activate the securities and deposit the funds digitally in households’ apps.

As Potter added, “it took Congress too long to get money to people, and it’s too clunky. We need a separate infrastructure. The Fed could buy the bonds quickly without going to the private market. On March 15 they could have said interest rates are now at zero, we’re activating X amount of the bonds, and we’ll be tracking the unemployment rate—if it increases above this level, we’ll buy more. The bonds will be on the asset side of the Fed’s balance sheet; the digital dollars in people’s accounts will be on the liability side.”

Essentially, the Fed is proposing creating a hybrid digital legal tender unlike reserves which are stuck within the financial system, and which it can deposit directly into US consumer accounts. In short, as we summarized “The Fed Is Planning To Send Money Directly To Americans In The Next Crisis, something we reminded readers of on Monday:

So this morning, as if to confirm our speculation of what comes next, Cleveland Fed president Loretta Mester delivered a speech to the Chicago Payment Symposium titled “Payments and the Pandemic“, in which after going through the big picture boilerplate, Mester goes straight to the matter at hand.

In the section titled “Central Bank Digital Currencies”, the Cleveland Fed president writes that “the experience with pandemic emergency payments has brought forward an idea that was already gaining increased attention at central banks around the world, that is, central bank digital currency (CBDC).”

And in the shocking punchline, then goes on to reveal that “legislation has proposed that each American have an account at the Fed in which digital dollars could be deposited, as liabilities of the Federal Reserve Banks, which could be used for emergency payments.

But wait it gets better, because in launching digital cash, the Fed would then be able to scrap “anonymous” physical currency entirely, and track every single banknote from its “creation” all though the various transactions that take place during its lifetime. And, eventually, the Fed could remotely “destroy” said digital currency when it so decides. Oh, and in the process the Fed would effectively disintermediate commercial banks, as it would both provide loans to US consumers and directly deposit funds into their accounts, effectively making the entire traditional banking system obsolete. Here are the details:

Other proposals would create a new payments instrument, digital cash, which would be just like the physical currency issued by central banks today, but in a digital form and, potentially, without the anonymity of physical currency. Depending on how these currencies are designed, central banks could support them without the need for commercial bank involvement via direct issuance into the end-users’ digital wallets combined with central-bank-facilitated transfer and redemption services. The demand for and use of such instruments need further consideration in order to evaluate whether such a central bank digital currency would allow for quicker and more ubiquitous payments in times of emergency and more generally. In addition, a range of potential risks and policy issues surrounding central bank digital currency need to be better understood, and the costs and benefits evaluated.

The Federal Reserve has been researching issues raised by central bank digital currency for some time. The Board of Governors has a technology lab that has been building and testing a range of distributed ledger platforms to understand their potential benefits and tradeoffs. Staff members from several Reserve Banks, including Cleveland Fed software developers, are contributing to this effort. The Federal Reserve Bank of Boston is also engaged in a multiyear effort, working with the Massachusetts Institute of Technology, to experiment with technologies that could be used for a central bank digital currency. The Federal Reserve Bank of New York has established an innovation center, in partnership with the Bank for International Settlements, to identify and develop in-depth insights into critical trends and financial technology of relevance to central banks. Experimentation like this is an important ingredient in assessing the benefits and costs of a central bank digital currency, but does not signal any decision by the Federal Reserve to adopt such a currency. Issues raised by central bank digital currency related to financial stability, market structure, security, privacy, and monetary policy all need to be better understood.

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EconomicPolicyJournal.com: Why Price Inflation Indexes Are More Fake Than Ever

Posted by M. C. on August 29, 2020

There are restaurants that don’t have outside dining just takeout. I pass them by.

The Jos. A. Bank clothing store in downtown San Francisco has closed. There is a sign in the window of the closed store suggesting I visit their nearest store—in Sacramento, a 2 hour drive.

It goes on and on. The unmeasured decline in goods and services that Cowen references because of the lockdowns is major and certainly not measured by the government indexes. Our standard of living is crashing.

https://www.economicpolicyjournal.com/2020/08/why-price-inflation-indexes-are-more.html

Tyler Cowen makes some interesting points in his Bloomberg column:

The most obvious effect of the pandemic is often better understood by the public than by professional economists: It has been an inflationary time, but not in the traditional manner.

The measured numbers indicate deflationary pressures, but that is misleading. In times of crisis, any measured inflation rate becomes much less meaningful as an economic indicator.

Let’s take education, which many American students have been doing online or not receiving much of at all. Whether for K-12 or at the university level, the cost of getting a quality education this year has risen drastically (think private tutors) — and for many individuals it may be impossible altogether. We are seeing deteriorating quality, and thus much higher real prices, yet this does not show up as either a quality adjustment or a price increase in standard calculations.
Or consider health care. For months, Americans were afraid to visit hospital facilities, for fear of contracting Covid-19. The perceived cost of the hospital visit was thus much higher, in terms of anxiety and medical risk, even if the sticker price or reimbursement rate for heart surgery hasn’t budged.
In many parts of the country, the lines at the motor vehicle offices are much longer, or it is much more time-consuming to get your car inspected for state approval. That is mostly due to pent-up demand from the worst months of the pandemic…
Education, health care and government are pretty big parts of our economy. If you add on the lower quality of restaurant visits, reduced sports performances (your ESPN cable package is worth less), and an inability to take preferred vacations and trips, you have many more negative quality adjustments that don’t show up in measured rates of inflation.
The Bureau of Labor Statistics, the Bureau of Economic Analysis, the Fed and other institutions have declined to make formal adjustments for these changes in the real standard of living…
Inflation measures work best when the consumption bundle is roughly stable over short periods of time, and that just hasn’t been the case this year…
Perhaps most important, price rules and other forms of inflation rules don’t really work in times of pandemic. The very measurement of price inflation becomes arbitrary, and dependent on inertial measurement conventions from normal times, so the numbers don’t have enough actual economic meaning to guide policy.

Cowen makes these points in a wider essay discussing Fed decisions based on traditional price index measures, which I am less inclined to agree with, but his point here on how the quality of goods and services have declined during the lockdown is a very important observation.

Off the top of my head, I can think of instances where it applies to me.

The local Whole Foods maintains a count of the number of customers in its store and makes others wait outside until customers leave to keep the occupancy limited. I really don’t have time for this nonsense (a cost for me) and so I rarely visit anymore.

There are restaurants that don’t have outside dining just takeout. I pass them by.

The Jos. A. Bank clothing store in downtown San Francisco has closed. There is a sign in the window of the closed store suggesting I visit their nearest store—in Sacramento, a 2 hour drive.

It goes on and on. The unmeasured decline in goods and services that Cowen references because of the lockdowns is major and certainly not measured by the government indexes. Our standard of living is crashing.

RW

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Watch “7 into 28” on YouTube

Posted by M. C. on June 5, 2020

Smarter than Congress. The Fed will make up the difference.

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Doug Casey: “We’re actually confronting the degradation of Western Civilization itself” | The Daily Bell

Posted by M. C. on June 3, 2020

By studying their tactics, you will be more prepared to guard against, and counter-attack the enemy.

The current crisis is being used to exploit the masses. But it also presents tremendous opportunity to take the power back, and reshape this world.

Society is entering a new period of transition, a struggle that will reveal the elites of the next generation.

Now is the time to seize your power if you intend to be among their ranks.

https://www.thedailybell.com/all-articles/news-analysis/doug-casey-were-actually-confronting-the-degradation-of-western-civilization-itself/

By Joe Jarvis

Matt Smith hosts Doug Casey, and the two manage to boil down certain elements of what brought us to where we are today, as Doug says, to “the moral corruption of society.”

Doug Casey, for anyway unfamiliar, is a writer and speculator– an anarcho-capitalist influenced by Ayn Rand.

Matt Smith is the CEO of Royalty Exchange, a company which provides investments in music and other intellectual property, for instance by selling royalty catalogs of Eminem’s music.

In regards to the economic cliff America is teetering on the edge of, Doug Casey says America’s attitude is that:

The Fed will print up new money and make it good. This is part of the moral corruption of society, where nobody has to take any responsibility for anything, from the little things to the big things, because the ‘Great White Father’ the cornucopia in Washington will kiss everything and make it better.

This isn’t just a monetary and economic disaster we’re looking at. It’s actually a moral disaster as well.

Matt Smith responds:

It’s like this safety first culture has permeated everything. All the way from bicycle helmets, to bailing out the airlines so that they don’t go bankrupt, to anything else you could imagine. It’s like any short term injury is seen as the ultimate evil that must be avoided at all costs.

Doug talks about the first time he heard the term “politically correct” which was back in the day on Saturday Night Live. It was a joke that you would have to watch what you say, for fear of political repercussions. He points out it’s not so different from “politically unreliable” as the Soviets used to say.

Doug believes:

We’re actually confronting the degradation of Western Civilization itself. This is much more serious than the Greater Depression, that we have definitely embarked upon. Humpty Dumpty has fallen off the wall… Look, the world is going to be very very different, in the next few years. Assuming even we don’t have something resembling WorldWar III. Which is entirely possible.

Matt agreed, commenting:

One of the things that dawned on me in the early stages of this, you could see this virus making its way across the world. You could see it coming. You could see that there were going to be implications… it doesn’t even matter how serious the virus actually is… you could see the effect it was having as it was making waves through the different countries it was going through.

From China, welding people into their apartments, to Italy completely going on lockdown, and overrunning hospitals. You could see it coming. And I remember in the midst of that, before it really got here in any great extent, Kim Jung Un launched a couple of missile.

And I thought wow, you could see how that could explode, to try and distract his own people, or you know, you could just see all these, it’s like a tinderbox, lots of little things could happen for their own internal, political reasons, could strike out and lead to much larger conflict.

Matt talks about a struggle between needing reform, and the sad reality that too often bad systems are replaced with something worse:

The total loss of faith in institutions, that they are demonstrably incompetent, and that nobody believes in them anymore, and so they get flushed away. And I think in that flushing away there is an opportunity, because they need to be flushed away, right? Because they are so corrupt, and flawed.

But it’s also frightening what might come in replacing it.

They also talk about gold, bitcoin, voluntarism, state governments standing up against the Feds, and the good habit of disobeying bad laws.

It’s really a great episode, and I encourage you to listen to the entire thing.

I’ve had the pleasure of learning from Matt Smith on a few occasions, at an entrepreneurship camp he co-founded.

He is one of a handful of people whose opinions and perspective I respect most in the world. Not just because of his business success, but also because of his philosophy on life.

His podcast is a must-listen for any value creators.

 

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Day of Shame: US House Approved $2 Trillion Everything Bailout on a Voice Vote – LewRockwell

Posted by M. C. on April 1, 2020

https://www.lewrockwell.com/2020/04/david-stockman/day-of-shame-us-house-approves-2-trillion-everything-bailout-on-a-voice-vote/

By

David Stockman’s Contra Corner

Did we say it’s getting stupid crazy down there in the Imperial City?

Well, we probably have….ad infinitum. And we are doing so again but not merely owing to today’s abomination in the once and former Peoples’ House, which thinks so little of its oath to defend the constitution and the rights of current and future taxpayers that it approved the $2 trillion Everything Bailout without even a roll call vote.

Then again, like the late night TV pitchman says – wait, there’s more!

Consider the chart below, which surely the Fed heads have not. To wit, it took the Fed 85 years after its doors opened in 1914 to print enough money to fund a $600 billion balance sheet.

It wasn’t exactly the Ohio State offense – three yards and a cloud of dust – which accomplished this. But it was pretty close – even including Greenspan’s first years at the helm. Between the famous Treasury Accord in 1951, under which the Fed was liberated from Treasury-ordered yield pegging, and 1999, its balance sheet grew at a modest 5.2% per annum.

And, by your way, the Fed’s relative stinginess with the printing press was a great big no nevermind. Real GDP grew at 3.4% per annum over that near half-century period, and real median family income more than doubled from $35,000 to $74,000.

We are pondering the number “$600 billion” today because its capsulizes the insanity loose in the Imperial City. What took 95 years to accomplish in the purportedly benighted 20th century, has now taken just five days!

You truly cannot make this stuff up. The Fed has purchased $622 billion of USTs and MBS since March 19th, meaning that its balance sheet has expanded from $4.75 trillion last Thursday evening to $5.372 trillion last night….

The rest here

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The Fed Has Sufficient Tools—to Wreck the Economy | Mises Wire

Posted by M. C. on March 17, 2020

https://mises.org/wire/fed-has-sufficient-tools%E2%80%94-wreck-economy?utm_source=Mises+Institute+Subscriptions&utm_campaign=bafe818a8f-EMAIL_CAMPAIGN_9_21_2018_9_59_COPY_01&utm_medium=email&utm_term=0_8b52b2e1c0-bafe818a8f-228343965

In its emergency announcement on Sunday evening, the Fed assured us that it “is prepared to use its full range of tools to support the flow of credit to households and businesses and thereby promote its maximum employment and price stability goals.” The Fed put its (fiat) money where its mouth is by announcing a host of programs. It cut its target interest rate by 1 percent to zero and reinstituted quantitative easing, pledging to purchase $700 billion worth of Treasury securities and agency mortgage-backed securities over the coming months. This is in addition to $1.5 trillion in temporary overnight and term repurchase operations that it announced two days ago. Separately, the Fed issued a coordinated announcement with a number of other central banks, including the Bank of England, Bank of Japan, and the ECB that the interest rate on dollar swap arrangements would be cut by 0.25 percent and 84-day maturity swap lines would be added to the current seven-day dollar swap lines. In yet another announcement, the Fed slashed the rate at its discount window by 1.5 percent to 0.25 percent and its reserve requirements for all banks and other depository institutions to 0 percent.

In the wake of these announcements, some commentators questioned whether the Fed has run out of “tools” to deal with the impending recession and recovery. Former Fed vice chair Donald Kohn was ambivalent, writing, “They are not out of tools, but they’ve used the biggest tool they have, the interest rate tool, the one that’s been proven over the years to work the most effectively.” Michael O’Rourke, chief market strategist at JonesTrading, took a dimmer view of the Fed’s predicament, declaring:

They blew it. The Fed panicked and the market is spooked. The S&P 500 registered all time highs less than a month ago and the Fed has expended all its conventional and unconventional tools.

Meanwhile policymakers rushed to reassure markets and the public that the Fed had or would obtain the tools they required to keep a panicked economy on an even keel. Secretary of the Treasury Steven Mnuchin indicated that he would request additional tools for the Fed that it was deprived of by Dodd-Frank legislation: “Certain tools were taken away that I am going to go back to Congress and ask for.” And Fed chairman Powell assured reporters that the Fed still has sufficient tools available to shepherd the economy through the COVID-19 crisis and guide its recovery.

But what are these “tools” that have policymakers, financial practitioners, and commentators so worked up? Renewed quantitative easing, the zero interest rate target, 84-day dollar swap lines, special repo facilities at the New York Fed, zero reserve requirements, etc., are nothing but cunning and arcane techniques for conjuring additional trillions of dollars out of thin air and pumping them into the global economy. Since its inception the Fed has always had one and only one tool for manipulating the economy: printing money. And this tool will never dull or break, and can be used again and again under any and all circumstances short of hyperinflation.

The real question is whether this tool will work to mitigate the economic contraction that will inevitably follow the supply-side shock of the COVID-19 epidemic and the deflation of the equity bubble (possibly followed by deflation in other asset markets). Common sense and basic economic theory tell us that the writing up of digital dollar balances will not alleviate the greater scarcity of concrete goods and services goods caused by shuttered factories and commercial establishments and by the lowered productivity of employees forced to work at home. Furthermore, the Austrian theory of the business cycle as illustrated by recent history does not encourage optimism that the imminent deluge of new dollars will encourage a swift and robust recovery from the impending recession. In fact, from 2010 to 2019, the US money supply (M2) increased by 80 percent, from $8.475 trillion to $15.243 trillion, and yet the US economy experienced a painfully protracted recovery from the post–financial crisis recession, followed by historically slow real output growth during the “boom” period despite the fact that asset market bubbles formed. Quarterly real GDP growth fluctuated between 1 and 3 percent during this period, except for five quarters in which it slightly exceeded 3 percent.

Most important, the announced expansionary policy could not be more ill timed. For it is imperative during a contraction of the economy caused by war, natural disaster, or epidemic that the price system be left free and unhampered to reveal the most valuable uses of productive resources whose quantities have been substantially reduced. Only this policy will facilitate the optimal path to a temporarily smaller economy and ensure that the most pressing demands of consumers are met during a period of greater resource scarcity. Unfortunately, the stated intent of the new Fed policy is precisely to stabilize the economy, that is, to prop up and maintain firms, industries, and productive activity as they were in the status quo ante. But this is clearly impossible given the shrunken supplies of the factors of production. By inundating the economy with money the Fed will not succeed in miraculously expanding these supplies but instead will distort the price structure and promote misallocation, malinvestment, and the waste of productive factors, thereby deepening and lengthening the recession.

 

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Yellen's Self-Serving Assessment: Fed Is "Doing Pretty ...

A Fed “tool”

 

 

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The Fed Slashes Rates as Powell Declares Economy “Strong” | Mises Wire

Posted by M. C. on March 3, 2020

But if fundamentals are so strong, why the need to enact the biggest rate cut in more than a decade?

https://mises.org/wire/fed-slashes-rates-powell-declares-economy-strong?utm_source=Mises+Institute+Subscriptions&utm_campaign=40a3b87a67-EMAIL_CAMPAIGN_2019_12_31_06_15_COPY_01&utm_medium=email&utm_term=0_8b52b2e1c0-40a3b87a67-228343965

The Federal Reserve this morning slashed the target federal funds rate by 0.5 percent today. According to CNBC:

The Federal Reserve moved to an enact an emergency interest rate cut after officials saw the coronavirus having a material impact on the economic outlook, Chairman Jerome Powell said Tuesday.

Powell held a news conference following the central bank’s decision to cut overnight interest rates by half a percentage point. He said the Fed “saw a risk to the economy and chose to act” in a cut announced at 10 am ET.

“The magnitude and persistence of the overall effect on the U.S. economy remain highly uncertain and the situation remains a fluid one,” he said. “Against this background, the committee judged that the risks to the U.S. outlook have changed materially. In response, we have eased the stance of monetary policy to provide some more support to the economy.”

With this change, the target rate now is back down to 1.25 percent. The target rate was last at this level during mid-to-late 2017, in the midst of several rate hikes as the Fed dared to allow rates to climb. During that period, the Fed repeatedly declared the US economy to be “moderately strong” or “strong,” although it proceeded with extreme caution even then.

target

Since July 2019, however, the Fed has returned to cutting the target rate, fearing that the economy is weakening. Then in August 2019, it began pumping liquidity into the repo market in an effort to shore up hedge funds and banks.

All the while we’ve been assured everything is fine.

Today’s rate cut of 50 basis points, however, is the largest rate cut since December 2008, in the midst of the aftermath of the financial crisis.

change

This Is Fine!

The Fed’s announcement comes only days after Powell announced on Friday that “The fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolving risks to economic activity.”

But if fundamentals are so strong, why the need to enact the biggest rate cut in more than a decade?

This is the usual flip-flopping we’ve been witnessing for years from the Fed. The Fed announces that the economy is stable and strong, but then it refuses to raise the target rate. Or the Fed may even cut the target rate, just as “a precaution.”

Those with particularly astute memories may recall the unfortunate similarity between Powell’s statement and John McCain’s declaration in September 2008 that “The fundamentals of our economy are strong, but these are very, very difficult times.”

In cases like this, it may be prudent to completely ignore the first part of the sentence about economic strength. The only information of importance lies in the second part of the sentence—the part about “difficult times” or “evolving risks.” The similarity between these two patronizing statements, of course, does not mean that Powell will be proven wrong in the same time frame as McCain. The Fed has become quite adept at creating new bubbles when old ones appear to weaken and at propping up market confidence with new bailouts, such as we saw with 2019 rescue of the repo markets.

So, the fact that we’re seeing some downturns now does now necessarily mean a full blown recession is right around the corner. Although the coronavirus outbreak presents serious problems in terms of the supply chain, the problems in Asia could actually drive more capital to the safety of the US and the dollar, postponing the economic reckoning in the US into the future yet again.

After all, other aspects of Fed policy show that the days of stimulus are far from over. The Fed is now nearly back to peak levels in terms of its portfolio, signaling that it is not at all willing to let the market have its head in terms of pricing Treasurys and a variety of other assets. The Fed knows there’s just not enough demand out there to soak it all up. As Doug French recently pointed out, after all, the private banks still haven’t shed all their shadow inventory, even in this booming economy.

But yet again we’re left with the question: if the Fed is slashing interest rates while “fundamentals are strong,” what must it do when things aren’t so “strong”? Negative rates and QE seem to be the logical next step.

On the other hand, the Fed has apparently not yet hit the panic button when it comes to interest paid on excess reserves (IOER). Today, it announced a cut to “the interest rate paid on required and excess reserve balances” down to 1.10 percent. The IOER is another tool the Fed uses to manage how much money leaves bank reserves, thus entering the real economy. The higher the IOER rate paid, the lower the opportunity cost banks face in keeping reserves locked up in reserves. In January, the interest paid on these reserves was up to 1.60 percent. The gap between the target federal funds rate and the IOER rate can be interpreted as an indicator of how badly the Fed wants to push reserves out the door of the banking system. In late 2019, the gap had been 20 basis points. But since late January, the Fed has narrowed this gap to 15 basis points, suggesting less urgency in the need for liquidity. Today’s cut to 1.10 percent keeps that gap at 15 basis points. This is a more moderate position than if the Fed had cut the IOER rate even more than than fed funds rate.

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Fed’s Core Mission Now Includes Climate Change

Posted by M. C. on January 30, 2020

Here’s a lesson for you climate fearmongers: Never put a time frame on your prediction that is shorter than your expected life or you will be ridiculed until you die.

https://moneymaven.io/mishtalk/economics/fed-s-core-mission-now-includes-climate-change-9i0VcEMMnka-AOFy69N5XQ

Mish

The Fed, ECB, Bank of England, and Bank of Japan have now embraced climate change as part of their mission.
It’s bad enough that central bankers are clueless about inflation.They now want their hands in another thing they do not understand and cannot control even if they did.

Fed’s Core Mission Change

Lael Brainard, Chair of the Fed’s Committee on Financial Stability, says Climate Change Matters for Monetary Policy and Financial Stability.

So how does climate change fit into the work of the Federal Reserve? To support a strong economy and a stable financial system, the Federal Reserve needs to analyze and adapt to important changes to the economy and financial system. This is no less true for climate change than it was for globalization or the information technology revolution.

To fulfill our core responsibilities, it will be important for the Federal Reserve to study the implications of climate change for the economy and the financial system and to adapt our work accordingly.

Climate Change Essential to Achieving Mission

Brainard was just one of the speakers at the Fed’s Economics of Climate Change summit last November.

Mary Daly, San Francisco Fed president has this Q&A in her presentation.

Q: Why is the San Francisco Fed hosting a climate conference? Why this? Why now?

A: The answer is simple. It’s essential to achieving our mission.

Bank of Japan Warns of Climate Change Risks

Japan Times reports Bank of Japan Gov. Haruhiko Kuroda Warns of Climate Change Risks.

The challenges posed by a string of recent natural disasters and the potential hit to the economy from slowing overseas growth “should be better addressed by government with fiscal policy and structural policies,” Kuroda said at a seminar.

As Japan is prone to big typhoons and earthquakes, Kuroda highlighted the risks related to climate change as an example of new issues central banks must deal with in maintaining financial stability.

“Climate-related risk differs from other risks in that its relatively long-term impact means the effects will last longer than other financial risks, and the impact is far less predictable,” he said. “It is therefore necessary to thoroughly investigate and analyze the impact of climate-related risk.”

Bank of England Climate Change Warning

The Bank of England hopped on the climate change bandwagon on December 30, with a Climate Change Warning from BoE Chief Mark Carney.

The world will face irreversible heating unless firms shift their priorities soon, the outgoing head of the Bank of England has told the BBC.

He said leading pension fund analysis “is that if you add up the policies of all of companies out there, they are consistent with warming of 3.7-3.8C”.

Scientists say the risks associated with an increase of 4C include a nine metre rise in sea levels – affecting up to 760 million people – searing heatwaves and droughts, and serious food supply problems.

“Now $120tn worth of balance sheets of banks and asset managers are wanting this disclosure [of investments in fossil fuels]. But it’s not moving fast enough.”

ECB in on the Climate Change Act

The Financial Times reports Christine Lagarde Wants Key Role for Climate Change in ECB Review.

Consider this Open Letter to ECB head Christine Lagarde from the European Parliament.

During your hearing at the European Parliament, you rightly pledged to make sure the ECB puts the “protection of the environment at the core of the understanding of its mission.” As academics, civil society and trade union leaders, entrepreneurs and citizens deeply concerned by climate change, we believe that the most powerful financial institution in Europe cannot just sit passively as we witness a growing environmental crisis.

Climate change not only imperils life-sustaining processes, it also threatens the financial stability, real economy and jobs. It has been estimated that without mitigation efforts, physical risks related to climate change could result in losses of up to $24 trillion of the value of global financial assets.

Wow. $24 Trillion at risk.

Nonetheless, Germany’s Bundesbank president Jens Weidmann, who also sits on the on the ECB’s governing council, understands the silliness of the move.

Weidmann says that he would view “very critically” any attempt to redirect a central bank’s actions towards climate change, such as favouring the purchase of green bonds as part of a quantitative easing programme.

Weidmann is guaranteed to be overruled.

Excellent Video on Climate Nonsense

Global Warming Fraud Exposed In Pictures

Please consider Global Warming Fraud Exposed In Pictures

The key to understanding the fraud is a changing timeline for temperature, fires, Winters, growing seasons, and sea level, all cherry picked for maximum impact.

Central Bank Fearmongering Blue Ribbon Contenders

  1. European Parliament: $24 Trillion in Damages
  2. Bank of England: 9 Meter rise in seal level (29.53 feet).

To decide who wins the blue ribbon, first let’s do a simulation.

10 Meter Rise in Seal Level

Mercy!

The above Alarming Map shows what might be left of Florida when the sea level rises by 10 meters.

Caney said 9 meters but the average elevation of Florida is allegedly only 6 feet. The highest elevation is only 312 feet.

Mark Carney Wins Fearmongering Blue Ribbon

I give Mark Carney the Central Bank fearmongering Blue Ribbon because people can understand the concept of Florida being three feet underwater.

In contrast, no one understands $24 trillion. Besides, that estimates will soon be $250 trillion or higher due to Fearmongering Inflation.

Fearmongering Lesson

None of the above tops AOC who says World Will End in 12 Years: Here’s What to Do About It

Here’s a lesson for you climate fearmongers: Never put a time frame on your prediction that is shorter than your expected life or you will be ridiculed until you die.

Mike “Mish” Shedlock

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FICO 10 Credit Score Changes: Here’s How You Might Be Impacted

Posted by M. C. on January 25, 2020

Easy Fed fake money has lenders in a bind.

https://www.cnbc.com/2020/01/23/fico-10-credit-score-changes.html

Americans who are struggling to pay off their debt could see lower FICO credit scores in their future, especially if they miss payments.

Fair Isaac Corp., the company behind the popular FICO credit score, announced the launch of its latest FICO 10 model today, Jan. 23, that will start incorporating consumers’ debt levels into their scoring model.

This comes as total household debt in the U.S. has steadily increased for about two years, and currently sits at about $13.95 trillion as of last September 2019, according to the Federal Reserve Bank of New York. That’s higher than the previous high of $12.68 trillion seen right before the 2008 financial crisis.

“This was bound to happen,” John Ulzheimer, an expert on credit scores and credit scoring, tells CNBC Make It. “The job of scoring models is to properly assess risk, not simply give people better scores as a default position.”

FICO estimates that about 110 million consumers will see a change of less than 20 points to their score under the new credit score model. Overall, roughly 80 million consumers will see a change in score of 20 or more points in either direction, upward or downward, FICO says.

3:04
What the FICO changes mean for consumers

Those who fall behind on their loan payments are more likely see the drop in their score, according to the Wall Street Journal, who first reported the changes. FICO also plans to flag consumers who sign up for personal loans, which are generally considered more risky since these are unsecured and typically do not require collateral like a car or a house.

“Those consumers with recent delinquency or high utilization are likely going to see a downward shift and depending on the severity and recency of the delinquency it could be significant,” Dave Shellenberger, FICO vice president of product management, said in a statement.

The new scoring model will also likely create a wider gap between those who are considered good credit risks and those who are not. Consumers who already have good credit, for example, and who continue to whittle down their already existing loans and make on-time payments will see higher scores. But those who score below 600 will see bigger dips in their scores under the new model.

This is a shift from many of the consumer-friendly policies that have popped up in recent years aimed at bolstering credit scores and building scores for those with little to no credit history by adding in payment history and account information.

“We’ve unfortunately found ourselves in an era where it’s becoming commonplace to water down the breadth of information on credit reports,” Ulzheimer says, adding that tax liens, judgments, medical collections and medical debt have all been removed or delayed from some credit scoring models.

“All of this is great for consumers who have tax liens, judgments, and medical collections…but it’s not great for scoring models and their users,” Ulzheimer adds. But he notes the new scoring model is not “consumer unfriendly” either. “People with good credit are going to score higher with newer models. People who have elevated risk are going to score lower.”

Despite the changes, it may take a while for consumers to notice the new changes. That’s because “change comes slowly in credit monitoring,” says CreditCards.com’s industry analyst Ted Rossman.

It’s up to banks and lenders decide which model they will use. The latest FICO scoring model in use is FICO 9, which was released in August 2014, although many lenders still use older models, such as FICO 8 model that came out in 2009. Meanwhile other lenders prefer to use VantageScore, which is produced by the credit bureaus Experian, Equifax and TransUnion.

“Rather than getting too hung up on which model a particular lender is using, consumers should practice fundamental good habits such as paying their bills on time and keeping their debts low,” Rossman says.

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