Barring some amazingly good news between now and the Fed meeting on September 21, a September rate hike is dead. Things don’t look all that great for December either, at least according to the futures.
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34 thoughts on “September Rate Hike Off the Table (What About December?)”
Trader Joesaid:
Has the Fed ever hiked in September of an election year?
Regardless, if Trump somehow starts crushing Clinton in the polls…Sept rate hike possible…if not a certainty.
Crushing Clinton in the polls might make something happen, but interest rates won’t be affected.
A new mediocrity has set in.
Low rates exist because low rates were sold as being needed and necessary. They needed to be extreme and they needed to be aggressive. They were sold extremely well and now they are the new normal. As in iron clad normal. As in the new mediocrity.
To change interest rates higher you need a visionary leader who has the support of the upper 1% and their minions. Remember, functionaries often don’t perform as servile doormats. Some actually believe they matter and make a difference. They will argue with those who order them to change direction. A strong ‘leader’, if that’s the right word, will get the message straight and get them in line. Eventually, they will comply and set the next new mediocrity in motion.
At that point, rated will rise.
Rising rates are needed to fix the US economy. Savers will see income which will be spent and cause economic expansion. Investment that offers a return will begin again and jobs will be created that pay decent wages. The stock market will conniption and junk bonds will suffer (yay, I want in at the bottom).
Having said all this, higher rates in September, or any month after that .. never. The Fed is part of the owned and operated mediocrity. They do what they’re told and no voice from the upper 1% is rising to tell them to change direction.
Seriously who cares. What difference is a quarter percent going to make. It will take them two or three years to go up one percent. Then they will cut them right back to so called stimulate the economy. They are rearranging chairs on the Titanic while the financial industry is fascinated by the arrangement of chairs. I am a little disappointed that you even care about this trivia.
Low interest ratejs will spur spending … If the peoplefeel they can afford to spend. Ge, it ain’t working so we will try something worsrs. It goes:
Worse,
Worser,
Worsest.
Absolutely agree, Seenitallbefore. Much as I enjoy these “monetary theology” debates, the timing of these micro-adjustments of one “rigged” interest rate metric will no doubt rank up there with medieval theological debates about angels and pinheads. The economy’s problems are structural. So, no amount of monetary stimulus or interest rate “riggings” by the FED is going to put the economy back together again. Simple as that. Will just be more collateral damage. Banks should be winners from Bank Politburo policies, yet are big losers along with pension funds and individual savers. Is there any winner here? Will Donald Trump versus Hillary Clinton make a difference on the economy?
The Fed could surprise…and I agree a rate rise would be a surprise.
The reason to raise is simple…just based on what they said they would do and that the fundamentals of the economy have not changed in any way since that view what expressed.
Indeed even more financial risk has been created since Brexit (yields have plunged in the USA, equities are now at all time highs) saying to me the Fed needs to continue to show confidence in the US Dollar so that folks “out there in the World” will continue to buy our debt at what our truly low yields.
That’s good for growth, good for keeping inflation low, good for jobs, quite possibly very good for markets, good for trade, etc etc
I don’t really care if the Fed basically says “meh, whatever…more of the same” but I do think it puts all that has been built and rebuilt since 9/11 at risk.
Can we please stop talking about the fantasy of them raising rates? The FIRE sector and the pols they own are in charge. The second (present and) future scenario below is what I predict.:
The ZIRP Trap
IREF WORKING PAPER NO. 201502
JANUARY 2015
Future scenarios, the exit problem and the ZIRP trap
—–
There are basically four scenarios for the future. (Huerta de Soto 2011)
Second, ZIRP causes a stagnation of the economy, similar to the situation that Japan has been suffering since the early 1990s. Due to ZIRP, a restructuring of the distortions of the boom is inhibited, and malinvestments are kept alive indefinitely. Aggregate debt levels are maintained. Uncertainty remains high and savings rates lower than they otherwise would have been. The economy lingers in a recession-like, anemic state. Currently, we still seem to be within this scenario even though some readjustments have occurred. It is in this scenario that the social and cultural consequences outlined in the last chapter come to their full potential.
—–
Restrictive monetary policy and an exit from ZIRP may cause the collapse of the
financial system. It could constitute an economic Armageddon for political and business elites, i.e. lead us back to the scenario that unconventional central bank policies prevented from 2008 onward.50 Despite some deleveraging after 2008, individuals and companies are still highly indebted. Many business models and investment strategies hinge on the continuation of ZIRP and unconventional monetary policies. Maturity mismatching and carry trade schemes that were made possible by ZIRP would become unprofitable. Moreover, the end of purchases of assets such as government bonds implies that the repayment of these bonds reduces the base money supply, which may cause a credit contraction.
An end of ZIRP could lead to falling asset prices and the insolvency of companies and investors dependent on interest rates close to zero. The turmoil could bring the financial system to the verge of collapse just as in 2008. The difference is that today governments are much more indebted than in 2008. In fact, governments are so highly indebted that small increases in the interest they have to pay may strain their budgets, and could force them to apply haircuts. 51 Put differently, the high amount of government debt makes the exit from unconventional policies difficult.52
ZIRP does not make the exit easier, to the contrary it may foster indebtedness and
fragility of the system as risk taking increases. We may therefore speak of a ZIRP trap, when the economy consolidates in overindebtedness and a fragility spiral. Once you are in a ZIRP trap, it become increasingly difficult to get out without causing bankruptcies and defaults, something which increases the perceived need to continue ZIRP to avoid further bankruptcies.
Politically, an exit is unpopular. The financial community will argue that a quick
monetary tightening is too dangerous (White 2012). Negative effects on specific but
politically sensitive companies, and an increase in unemployment makes the exit
politically unattractive. Increases in interest rates would raise pressure for fiscal
consolidation, which is quite unpopular among governments. A reduction in central
bank balance sheets would reveal the magnitude of redistribution of wealth and income since 2008, and cause a political storm (Buiter 2009).
Due to high debts (public and private), political elites will go for a slow and cautious
exit from unconventional policies. In any case, exit will only be successful if
government debts can be reduced to a level sustainable with normal (higher) interest
rates.
Winston, I’ve been saying the same thing now for years. But people don’t seem to get it for some strange reason.
The fact is they CAN’T raise the interest rates by any nominal degree without blowing up the economy at these debt levels. And they can’t pay down the debt. It will only go higher. They’re stuck until the rates rise involuntarily which is just a matter of time. Go ask Jimmy Carter how that works. And then we’re toast.
So all this talk of rate increases is gobbledygook. Entertainment for the masses. Be patient folks. You won’t see any rate increases to write home to mom about. But you will see the rates rise on their own eventually – much to the dismay of the financial and political scoundrels that led us into this trap. At that point they lose control and all hell breaks loose.
Rate hike… Now what does that mean. Don’t tell me you guys take us jokers at the Fed seriously when we talk about rate hike. We just float such balloons just to test market’s reaction. As soon as the market sneezes we take the rate hike balloon and run with the balloon between our legs. Since when has the world started taking the circus that we run so seriously. We are the buffoons of the show and we request you to not take us seriously.
Thats what “mush talk” does…Jewish crapologist extraorindaire. Not true of even a Hymie Fed though because they’re taking their orders or another 9 million die instantly and to great joy of the planet…
How long have they been jawboning about more rate hikes, and how many have we seen?
Yellen actually talks more about NIRP than rate hike, so the Fed’s direction/quandry should be obvious for all to see & understand…
The Fed is cornered, and has been since 2008. Nothing has changed. Expect more QE, etc. until the system implodes… it’s the only possible outcome.
Look at the scenarios that would including raising rates (now/soon/later)… disasteous. Raising rates is an impossibility. If they do it, they’ll be forced to un-do it w/in 6mos.
Unlike the entire Planet which knows nothing but free money for everyone.
And “look to the result”: the Fed raised rates and markets have hit new all time record highs both nominally and in dollar terms as well. That includes equities, treasuries, real estate, corporate debt, muni debt…everything but the Banks which are struggling with low rates and literally megatons of silver and gold flooding into the United States. I’d love to know who’s buying nickel at the current price let alone copper. Copper should be ten cents for a ton…refined…instead we have “the Shylock…
Ralph Wiggum: “If mommy’s purse didn’t belong in the microwave, why did it fit?”
Central Bankers: “If we aren’t right, why are we in charge? Us, wrong? That’s unpossible!”
Ralph Wiggum: “I’m Idaho!” [has a piece of paper with “Idaho” written on it taped to his chest]
Principal Skinner: “Yes, of course you are.”
Central Bankers: “We’re right!” [have a graph of IMF world economic growth projections taped to their chests]
World Economy: “Yes, of course you are.”
Judging by the action of these markets, a rate hike would likely send the Dow over the 20k mark. The Fed will need to monetize the extra expense imposed on the economy by increased interest, after all?
Heck, using 18k as a new base, maybe 30k isn’t out of the question?
I think it’s bonds that worry the Fed more than any other factor here. Sure, they will buy the entire market if that’s “What it Takes.” But then what, a decade or so down the road, after it’s all been Nationalized? Will they have their political apparatchiks installed, and most opposition crushed by that time?
On the sustainability of all this, isn’t the only question left, “How much devaluation will be necessary to wash away existing debt overhangs, while maintaining Social Order?”
What if the fed hiked rates 2 times, 25 basis points each. Then what if the rest of the world started investing their money into treasuries, becausevtheir venues were ZIRP NIRP, driving the long term rates down even further. PINBALL, when you jar the table in an attempt to cheat – TILT. TILT. TILT.
As I have stated numerous times, “the data” has nothing to do with when the Fed will raise rates. The Fed cares about one thing, it’s reputation, particularly as a serial bubble blower. The Fed will raise rates to stop the bubble in stocks caused by global capital flows, which of course will only blow the bubble bigger, and grow the Fed’s legacy as problem perpetuator.
The govt will keep imposing its will until “the data” improves, which guarantees the economy, freedom, and prosperity will get worse. Proactive reforms by the establishment will NEVER occur, because it would require them to admit their mistakes and sacrifice their lifestyles. Hillary is the establishment’s posterchild, Trump is their nemisis. Trump also knows how to restructure and swap debt, which must be part of the solution.
Mish, I am sorry but I will not join Twitter to vote. I am about ready to boycott Google as well for their biased political views.
We have been near zero for years. This is an emergency measure. The emergency is not over because the problems were swept under the rug rather than fixed. The FED flooded the market with stimulus and specifically overseas.
Zero interest rates showed up around the same time the fed started to taper. That has allowed the dollar to remain strong and the FED to begin their interest rate rise jabber. This leads me to believe that the FED and many of the other banks are either one and the same or in collusion.
Negative interest rates in Europe are supportive of the US dollar because investors outside flee to invest in US denominated instruments. I do not think other nations can continue to maintain negative interest rates without creating a financial or social negative event. I do not see how the FED raising inter-bank rates is going to have any effect whether they do it or not. I also do not think FED will not go negative because at that point the game should be obvious to the rest of us sheep. Anyone with liquidity would be advised to move to physical assets.
Central banks are buying treasuries and stocks. That means central banks are the market because they can theoretically print to infinity. I cannot see how they are going to resolve this without turmoil.
So the bank is waiting for things to return to normal before resuming normal rates.
Here’s the thing. Printing moves the economy backward, not forward. The economy will never, ever return to 20th century free market capitalism type improvement rates as long as the bank is printing. The economy will slowly spiral into a banana republic economy. Just like all other economies around the world did when printing took place. At least they stopped that QE nonsense here, which helps a bit.
All central planners claim to be smarter than those who came before them. None of them ever are. Bank central planning of the economy has proven to be just as inefficient as all of the other central planners.
The only reason the Fed brings up the rate issue is to float the old canary in the mine shaft to determine how the markets would react IF the rate was hiked. But Yellen and her band of renegades know damned well that they’ve painted not only the nation but the entire world into a corner. We’re at the tipping point and a rate raise could very likely bring down the house of cards. So they keep kicking that dented can down the road UNTIL THEY CAN’T ANYMORE!!!
Eventually the rates will rise INVOLUNTARILY and we’re all screwed. That’s when they bring back the “Poor House” and the “Soup Kitchen”.
I hope it happens before all the Baby Boomers die off. We deserve to eat some of our own cooking. It would be a HUGE injustice for us to escape the wrath of our folly.
If the Millenials had any brains at all they’d be protesting in the streets as I type.
You mean when bond buyers start bidding up due to risk? The fed orobably should have startex interest rate hiks in 2013. Instead they initiated a world wide race to the bottom. Limbo Time…. How low can you go?
Slightly younger than yourself and maybe even more cynical. I have watched the boomers and their views from close, and I have watched the ‘new discipline’ install itself in their wake. My view is that the aim is to buy out the economy and society. There is no centrally managed escape from ZIRP available that does not include revolution or force of some kind. Government spending and corporate business take up a vast share of GDP already, in Europe just government is often over 40 %. That is why socialism is promoted, it is part of the cycle of wealth necessary to train in the discards of the system.
Eventually, unless there is an unplanned disruption, the top rated borrowers mentioned above will be commanding the economy and society with freely obtained currency, possibly totally.
To me that is much worse than any revolution, people will become programmed of the system.
Do you think the Germans understood what they were being turned into in the interwar period? We like to imagine that those in power will cede to the morals we are accustomed to eventually, but this is not guaranteed, it is as possible we will be asked and encouraged to adapt our views to their leadership, possibly actualling using or transforming anyone’s existing morals to do so.
The same goes for any country, or union of them, this is a global trend now, with western countries slightly ahead in the game, because they have the intelligence, resources, and technical ability. It is even possible opposing countries are actually just working together to play off their citizens to a common destiny.
…And I am sure it will all look quite nice and sensible to many people along the way, just as long as they accept.
I’m wondering if the corporates are buying back shares thinking that ZIRP/NIRP is going to last forever, therefore they have the time to make themselves private. Then we truly have 2 distinct sides of the economy.
1. The little people with the currency and,
2. corporates/gubberement with all the real assets.
To my view shareholders are little people slightly better off than other little people , they take a cut of corporate profits which brings them some ‘private’ income . They have little or no say in corporate strategy .
The currency is distributed by government , controlled by government . Wherever currency flows government will rake off part of it and redistribute it . Government manipulates where currency in private hands gets invested . Government will also create new currency via debt to be paid by all , particularly the slightly better off little people , and funnel it towards government ends , including the not so well off little people .
Government works with corporate to ensure its success , and vice versa.
So there are already two distinct sides to the economy , those with the real influence , say and profits (corporate/government) , and those that have the ability to demand to a certain extent (little people with their share of currency and their vote) .
The more the first controls currency and its supply , supply of goods and services and hence choice , politics , media , law and so on , the more restricted or neutralized the second group becomes .
They are not completely distinct groups just yet in terms of profit and decision making , and in fact I suppose proponents to evolution along these lines would try to paint a very different picture , something along the lines of state capitalism with a social objective , where ultimately the profits of the whole are equitably distributed by a natural hierarchy of management under a democratic mantel … the little person (vast majority) simply not having any real individual choice , much as he or she might imagine they do.
What bugs me is that people either give up , or have taken off them , their own power and responsibility, in this way . As LFOldtimer says , it is sad , to me it is like people have become clueless or spend their time arguing over false arguments instead of recognizing simple reality and dealing with it – not easy as what is being installed is pervasively demeaning at many levels , including to intellect and will .
What you are describing is the transition to the Totalitarian Socialist state. What do you do if the voters vote in a totalitarian socialist state, as they did in 1930s Germany, and thunderously approve of a murderous state conducting genocidal wars in their name? Asset seizures would be small potatoes in this scenario, particularly if the majority are socialist and debtors who see asset seizures as benefiting their financial situation. Private property is not a consideration, because the state provided infrastructure (says Obama) and all property therefore belongs to the national socialist collective (infrastructure providers). Nuclear war, just something distant to be visited preemptively on distant others in places like Russia. Dismembering, sodomizing and murdering foreign leaders and then gloating about it is a leadership prerequisite in the distorted National Socialist mirror (the lady sees Hitler looking at herself in the mirror; but the psyche protects her, and she projects Hitler images all around her, and wants to go to war against the projected mirror images from inside herself).
The Ten Commandments and Judeo-Christian moral inner restraints have been buried alive and the National socialist godless majority is ready to go along for the Neo-con ride. American and German national socialists are the same human species. USA.gov began its overtly stated preemptive war policy under Bush II, and expanded the stated (though not yet actual) policy to preemptive nuclear strikes under Obama.
Donald Trump is being “too polite” when he refers to Crooked Hillary. Trump was harsher against Ted Cruz, who was farther from being a war criminal than his number one current opponent. Trump unfortunately is in danger of becoming a hollow caricature of his former self. That is all that stands between National Socialism USA style going exponential and nuclear. More nerve-wracking than Brexit.
All this talk about the “little people” makes no sense to me, unless you mean elves, dwarves, growth hormone deficiencies or the hobbits, Tolkien’s fictionalized WWI soldiers. Rich or poor, you will be equally dead and gone when your allotted time is up; until then, equality of wealth, brain power, athletic ability, or anything else is an impossibility.
Rich and poor are just labels, useful for statistical analysis and Marxist propaganda if you are so inclined. Rich people are characterized as greedy, yet in their ranks are the majority of philanthropists and most charity, for obvious reasons (they have the resources to give). Might not Andrew Carnegie’s using his wealth to fund public libraries in the USA be a better use of the money than the government confiscating the assets and redistributing it to defense contractors for nuclear weapons or insurance companies as Obamacare subsidies?
Equal pay for equal work sounds good, but it is just an Orwellian propaganda slogan. Does Hillary believe that everyone should get $250 million for a one hour speech to Goldman-Sachs? Or does Hillary advocate everyone give pro-bono speeches; and is she prepared to give everyone a share of her speech money? Obviously, not. Equality is a pernicious fiction, a useful slogan for the French Revolution and Marxists to rally the masses to gain power. Asset redistribution, a topic for another time; but essentially arbitrary. If you cannot find happiness without being the wealthiest person around, then you have a severe spiritual or emotional deficiency which needs something other than more money and assets to be remedied. In times past, it was not uncommon for kings and queens to leave behind their lands and wealth and retire to monasteries to live out their lives in poverty; there was no stigma.
Yes, little people is not really appropriate as it can be read in different ways , it is not a phrase I use but took it to be a sarcastic kick back at the patronizing attitude of state, one that on the opposite hand is used to expand its influence by offering ‘solutions’ to the ‘outcasts’.
It is nerve wracking, I know the sort of pressure those at the top are under ( no, not the president etc. ), and they are ‘only’ human beings. They don’t sit around like villains in a film, policy has to be articulated carefully and there are layers of verification to everything – once event or policy moves in a certain direction , chosen or by result, it may get fully commited to itself.
So we will not know until just before the election. But come December, they will raise or hint at raising. The Fed has killed Pensions and they know that they have waited too long. But then again, other Central Bankers can Fu*kup big time and make whatever the Fed does not matter.
If Global Trade totally collapses prior to our election, all bets are off.
Has the Fed ever hiked in September of an election year?
Regardless, if Trump somehow starts crushing Clinton in the polls…Sept rate hike possible…if not a certainty.
Then the subsequent market drop can be blamed on Trump and how he’ll be bad for the economy.
I could just about write the script for this mess.
the script is already written.
Crushing Clinton in the polls might make something happen, but interest rates won’t be affected.
A new mediocrity has set in.
Low rates exist because low rates were sold as being needed and necessary. They needed to be extreme and they needed to be aggressive. They were sold extremely well and now they are the new normal. As in iron clad normal. As in the new mediocrity.
To change interest rates higher you need a visionary leader who has the support of the upper 1% and their minions. Remember, functionaries often don’t perform as servile doormats. Some actually believe they matter and make a difference. They will argue with those who order them to change direction. A strong ‘leader’, if that’s the right word, will get the message straight and get them in line. Eventually, they will comply and set the next new mediocrity in motion.
At that point, rated will rise.
Rising rates are needed to fix the US economy. Savers will see income which will be spent and cause economic expansion. Investment that offers a return will begin again and jobs will be created that pay decent wages. The stock market will conniption and junk bonds will suffer (yay, I want in at the bottom).
Having said all this, higher rates in September, or any month after that .. never. The Fed is part of the owned and operated mediocrity. They do what they’re told and no voice from the upper 1% is rising to tell them to change direction.
Seriously who cares. What difference is a quarter percent going to make. It will take them two or three years to go up one percent. Then they will cut them right back to so called stimulate the economy. They are rearranging chairs on the Titanic while the financial industry is fascinated by the arrangement of chairs. I am a little disappointed that you even care about this trivia.
Low interest ratejs will spur spending … If the peoplefeel they can afford to spend. Ge, it ain’t working so we will try something worsrs. It goes:
Worse,
Worser,
Worsest.
Absolutely agree, Seenitallbefore. Much as I enjoy these “monetary theology” debates, the timing of these micro-adjustments of one “rigged” interest rate metric will no doubt rank up there with medieval theological debates about angels and pinheads. The economy’s problems are structural. So, no amount of monetary stimulus or interest rate “riggings” by the FED is going to put the economy back together again. Simple as that. Will just be more collateral damage. Banks should be winners from Bank Politburo policies, yet are big losers along with pension funds and individual savers. Is there any winner here? Will Donald Trump versus Hillary Clinton make a difference on the economy?
If one of the economies is radioactive it might.
It’s all Brexit’s fault, in fact everything is Brexit’s fault, everthing would be just pucker if it wasn’t for Brexit…
So far, Chalie Gasparrino was right… One and done.
The Fed could surprise…and I agree a rate rise would be a surprise.
The reason to raise is simple…just based on what they said they would do and that the fundamentals of the economy have not changed in any way since that view what expressed.
Indeed even more financial risk has been created since Brexit (yields have plunged in the USA, equities are now at all time highs) saying to me the Fed needs to continue to show confidence in the US Dollar so that folks “out there in the World” will continue to buy our debt at what our truly low yields.
That’s good for growth, good for keeping inflation low, good for jobs, quite possibly very good for markets, good for trade, etc etc
I don’t really care if the Fed basically says “meh, whatever…more of the same” but I do think it puts all that has been built and rebuilt since 9/11 at risk.
Can we please stop talking about the fantasy of them raising rates? The FIRE sector and the pols they own are in charge. The second (present and) future scenario below is what I predict.:
The ZIRP Trap
IREF WORKING PAPER NO. 201502
JANUARY 2015
http://de.irefeurope.org/SITES/de.irefeurope.org/IMG/pdf/bagus_2015_final.pdf
Excerpts:
Future scenarios, the exit problem and the ZIRP trap
—–
There are basically four scenarios for the future. (Huerta de Soto 2011)
Second, ZIRP causes a stagnation of the economy, similar to the situation that Japan has been suffering since the early 1990s. Due to ZIRP, a restructuring of the distortions of the boom is inhibited, and malinvestments are kept alive indefinitely. Aggregate debt levels are maintained. Uncertainty remains high and savings rates lower than they otherwise would have been. The economy lingers in a recession-like, anemic state. Currently, we still seem to be within this scenario even though some readjustments have occurred. It is in this scenario that the social and cultural consequences outlined in the last chapter come to their full potential.
—–
Restrictive monetary policy and an exit from ZIRP may cause the collapse of the
financial system. It could constitute an economic Armageddon for political and business elites, i.e. lead us back to the scenario that unconventional central bank policies prevented from 2008 onward.50 Despite some deleveraging after 2008, individuals and companies are still highly indebted. Many business models and investment strategies hinge on the continuation of ZIRP and unconventional monetary policies. Maturity mismatching and carry trade schemes that were made possible by ZIRP would become unprofitable. Moreover, the end of purchases of assets such as government bonds implies that the repayment of these bonds reduces the base money supply, which may cause a credit contraction.
An end of ZIRP could lead to falling asset prices and the insolvency of companies and investors dependent on interest rates close to zero. The turmoil could bring the financial system to the verge of collapse just as in 2008. The difference is that today governments are much more indebted than in 2008. In fact, governments are so highly indebted that small increases in the interest they have to pay may strain their budgets, and could force them to apply haircuts. 51 Put differently, the high amount of government debt makes the exit from unconventional policies difficult.52
ZIRP does not make the exit easier, to the contrary it may foster indebtedness and
fragility of the system as risk taking increases. We may therefore speak of a ZIRP trap, when the economy consolidates in overindebtedness and a fragility spiral. Once you are in a ZIRP trap, it become increasingly difficult to get out without causing bankruptcies and defaults, something which increases the perceived need to continue ZIRP to avoid further bankruptcies.
Politically, an exit is unpopular. The financial community will argue that a quick
monetary tightening is too dangerous (White 2012). Negative effects on specific but
politically sensitive companies, and an increase in unemployment makes the exit
politically unattractive. Increases in interest rates would raise pressure for fiscal
consolidation, which is quite unpopular among governments. A reduction in central
bank balance sheets would reveal the magnitude of redistribution of wealth and income since 2008, and cause a political storm (Buiter 2009).
Due to high debts (public and private), political elites will go for a slow and cautious
exit from unconventional policies. In any case, exit will only be successful if
government debts can be reduced to a level sustainable with normal (higher) interest
rates.
“In any case, exit will only be successful if government debts can be reduced to a level sustainable with normal (higher) interest rates.”
What is the color of the sky in the world where that will happen? It ain’t blue, I’ll tell you that.
Winston, I’ve been saying the same thing now for years. But people don’t seem to get it for some strange reason.
The fact is they CAN’T raise the interest rates by any nominal degree without blowing up the economy at these debt levels. And they can’t pay down the debt. It will only go higher. They’re stuck until the rates rise involuntarily which is just a matter of time. Go ask Jimmy Carter how that works. And then we’re toast.
So all this talk of rate increases is gobbledygook. Entertainment for the masses. Be patient folks. You won’t see any rate increases to write home to mom about. But you will see the rates rise on their own eventually – much to the dismay of the financial and political scoundrels that led us into this trap. At that point they lose control and all hell breaks loose.
No way, or you might find Janet Yellen conveniently dealt with by the Clinton’s….
Rate hike… Now what does that mean. Don’t tell me you guys take us jokers at the Fed seriously when we talk about rate hike. We just float such balloons just to test market’s reaction. As soon as the market sneezes we take the rate hike balloon and run with the balloon between our legs. Since when has the world started taking the circus that we run so seriously. We are the buffoons of the show and we request you to not take us seriously.
Thats what “mush talk” does…Jewish crapologist extraorindaire. Not true of even a Hymie Fed though because they’re taking their orders or another 9 million die instantly and to great joy of the planet…
When was the last rate hike?
How long have they been jawboning about more rate hikes, and how many have we seen?
Yellen actually talks more about NIRP than rate hike, so the Fed’s direction/quandry should be obvious for all to see & understand…
The Fed is cornered, and has been since 2008. Nothing has changed. Expect more QE, etc. until the system implodes… it’s the only possible outcome.
Look at the scenarios that would including raising rates (now/soon/later)… disasteous. Raising rates is an impossibility. If they do it, they’ll be forced to un-do it w/in 6mos.
The last rate hike was in December.
Unlike the entire Planet which knows nothing but free money for everyone.
And “look to the result”: the Fed raised rates and markets have hit new all time record highs both nominally and in dollar terms as well. That includes equities, treasuries, real estate, corporate debt, muni debt…everything but the Banks which are struggling with low rates and literally megatons of silver and gold flooding into the United States. I’d love to know who’s buying nickel at the current price let alone copper. Copper should be ten cents for a ton…refined…instead we have “the Shylock…
Central Bankers vs Ralph Wiggum
Ralph Wiggum: “If mommy’s purse didn’t belong in the microwave, why did it fit?”
Central Bankers: “If we aren’t right, why are we in charge? Us, wrong? That’s unpossible!”
Ralph Wiggum: “I’m Idaho!” [has a piece of paper with “Idaho” written on it taped to his chest]
Principal Skinner: “Yes, of course you are.”
Central Bankers: “We’re right!” [have a graph of IMF world economic growth projections taped to their chests]
World Economy: “Yes, of course you are.”
Judging by the action of these markets, a rate hike would likely send the Dow over the 20k mark. The Fed will need to monetize the extra expense imposed on the economy by increased interest, after all?
Heck, using 18k as a new base, maybe 30k isn’t out of the question?
I think it’s bonds that worry the Fed more than any other factor here. Sure, they will buy the entire market if that’s “What it Takes.” But then what, a decade or so down the road, after it’s all been Nationalized? Will they have their political apparatchiks installed, and most opposition crushed by that time?
On the sustainability of all this, isn’t the only question left, “How much devaluation will be necessary to wash away existing debt overhangs, while maintaining Social Order?”
What if the fed hiked rates 2 times, 25 basis points each. Then what if the rest of the world started investing their money into treasuries, becausevtheir venues were ZIRP NIRP, driving the long term rates down even further. PINBALL, when you jar the table in an attempt to cheat – TILT. TILT. TILT.
As I have stated numerous times, “the data” has nothing to do with when the Fed will raise rates. The Fed cares about one thing, it’s reputation, particularly as a serial bubble blower. The Fed will raise rates to stop the bubble in stocks caused by global capital flows, which of course will only blow the bubble bigger, and grow the Fed’s legacy as problem perpetuator.
The govt will keep imposing its will until “the data” improves, which guarantees the economy, freedom, and prosperity will get worse. Proactive reforms by the establishment will NEVER occur, because it would require them to admit their mistakes and sacrifice their lifestyles. Hillary is the establishment’s posterchild, Trump is their nemisis. Trump also knows how to restructure and swap debt, which must be part of the solution.
Mish, I am sorry but I will not join Twitter to vote. I am about ready to boycott Google as well for their biased political views.
We have been near zero for years. This is an emergency measure. The emergency is not over because the problems were swept under the rug rather than fixed. The FED flooded the market with stimulus and specifically overseas.
Zero interest rates showed up around the same time the fed started to taper. That has allowed the dollar to remain strong and the FED to begin their interest rate rise jabber. This leads me to believe that the FED and many of the other banks are either one and the same or in collusion.
Negative interest rates in Europe are supportive of the US dollar because investors outside flee to invest in US denominated instruments. I do not think other nations can continue to maintain negative interest rates without creating a financial or social negative event. I do not see how the FED raising inter-bank rates is going to have any effect whether they do it or not. I also do not think FED will not go negative because at that point the game should be obvious to the rest of us sheep. Anyone with liquidity would be advised to move to physical assets.
Central banks are buying treasuries and stocks. That means central banks are the market because they can theoretically print to infinity. I cannot see how they are going to resolve this without turmoil.
So the bank is waiting for things to return to normal before resuming normal rates.
Here’s the thing. Printing moves the economy backward, not forward. The economy will never, ever return to 20th century free market capitalism type improvement rates as long as the bank is printing. The economy will slowly spiral into a banana republic economy. Just like all other economies around the world did when printing took place. At least they stopped that QE nonsense here, which helps a bit.
All central planners claim to be smarter than those who came before them. None of them ever are. Bank central planning of the economy has proven to be just as inefficient as all of the other central planners.
It’s so stupid it’s silly.
The only reason the Fed brings up the rate issue is to float the old canary in the mine shaft to determine how the markets would react IF the rate was hiked. But Yellen and her band of renegades know damned well that they’ve painted not only the nation but the entire world into a corner. We’re at the tipping point and a rate raise could very likely bring down the house of cards. So they keep kicking that dented can down the road UNTIL THEY CAN’T ANYMORE!!!
Eventually the rates will rise INVOLUNTARILY and we’re all screwed. That’s when they bring back the “Poor House” and the “Soup Kitchen”.
I hope it happens before all the Baby Boomers die off. We deserve to eat some of our own cooking. It would be a HUGE injustice for us to escape the wrath of our folly.
If the Millenials had any brains at all they’d be protesting in the streets as I type.
You mean when bond buyers start bidding up due to risk? The fed orobably should have startex interest rate hiks in 2013. Instead they initiated a world wide race to the bottom. Limbo Time…. How low can you go?
Slightly younger than yourself and maybe even more cynical. I have watched the boomers and their views from close, and I have watched the ‘new discipline’ install itself in their wake. My view is that the aim is to buy out the economy and society. There is no centrally managed escape from ZIRP available that does not include revolution or force of some kind. Government spending and corporate business take up a vast share of GDP already, in Europe just government is often over 40 %. That is why socialism is promoted, it is part of the cycle of wealth necessary to train in the discards of the system.
Eventually, unless there is an unplanned disruption, the top rated borrowers mentioned above will be commanding the economy and society with freely obtained currency, possibly totally.
To me that is much worse than any revolution, people will become programmed of the system.
Do you think the Germans understood what they were being turned into in the interwar period? We like to imagine that those in power will cede to the morals we are accustomed to eventually, but this is not guaranteed, it is as possible we will be asked and encouraged to adapt our views to their leadership, possibly actualling using or transforming anyone’s existing morals to do so.
The same goes for any country, or union of them, this is a global trend now, with western countries slightly ahead in the game, because they have the intelligence, resources, and technical ability. It is even possible opposing countries are actually just working together to play off their citizens to a common destiny.
…And I am sure it will all look quite nice and sensible to many people along the way, just as long as they accept.
I’m wondering if the corporates are buying back shares thinking that ZIRP/NIRP is going to last forever, therefore they have the time to make themselves private. Then we truly have 2 distinct sides of the economy.
1. The little people with the currency and,
2. corporates/gubberement with all the real assets.
To my view shareholders are little people slightly better off than other little people , they take a cut of corporate profits which brings them some ‘private’ income . They have little or no say in corporate strategy .
The currency is distributed by government , controlled by government . Wherever currency flows government will rake off part of it and redistribute it . Government manipulates where currency in private hands gets invested . Government will also create new currency via debt to be paid by all , particularly the slightly better off little people , and funnel it towards government ends , including the not so well off little people .
Government works with corporate to ensure its success , and vice versa.
So there are already two distinct sides to the economy , those with the real influence , say and profits (corporate/government) , and those that have the ability to demand to a certain extent (little people with their share of currency and their vote) .
The more the first controls currency and its supply , supply of goods and services and hence choice , politics , media , law and so on , the more restricted or neutralized the second group becomes .
They are not completely distinct groups just yet in terms of profit and decision making , and in fact I suppose proponents to evolution along these lines would try to paint a very different picture , something along the lines of state capitalism with a social objective , where ultimately the profits of the whole are equitably distributed by a natural hierarchy of management under a democratic mantel … the little person (vast majority) simply not having any real individual choice , much as he or she might imagine they do.
What bugs me is that people either give up , or have taken off them , their own power and responsibility, in this way . As LFOldtimer says , it is sad , to me it is like people have become clueless or spend their time arguing over false arguments instead of recognizing simple reality and dealing with it – not easy as what is being installed is pervasively demeaning at many levels , including to intellect and will .
What you are describing is the transition to the Totalitarian Socialist state. What do you do if the voters vote in a totalitarian socialist state, as they did in 1930s Germany, and thunderously approve of a murderous state conducting genocidal wars in their name? Asset seizures would be small potatoes in this scenario, particularly if the majority are socialist and debtors who see asset seizures as benefiting their financial situation. Private property is not a consideration, because the state provided infrastructure (says Obama) and all property therefore belongs to the national socialist collective (infrastructure providers). Nuclear war, just something distant to be visited preemptively on distant others in places like Russia. Dismembering, sodomizing and murdering foreign leaders and then gloating about it is a leadership prerequisite in the distorted National Socialist mirror (the lady sees Hitler looking at herself in the mirror; but the psyche protects her, and she projects Hitler images all around her, and wants to go to war against the projected mirror images from inside herself).
The Ten Commandments and Judeo-Christian moral inner restraints have been buried alive and the National socialist godless majority is ready to go along for the Neo-con ride. American and German national socialists are the same human species. USA.gov began its overtly stated preemptive war policy under Bush II, and expanded the stated (though not yet actual) policy to preemptive nuclear strikes under Obama.
Donald Trump is being “too polite” when he refers to Crooked Hillary. Trump was harsher against Ted Cruz, who was farther from being a war criminal than his number one current opponent. Trump unfortunately is in danger of becoming a hollow caricature of his former self. That is all that stands between National Socialism USA style going exponential and nuclear. More nerve-wracking than Brexit.
All this talk about the “little people” makes no sense to me, unless you mean elves, dwarves, growth hormone deficiencies or the hobbits, Tolkien’s fictionalized WWI soldiers. Rich or poor, you will be equally dead and gone when your allotted time is up; until then, equality of wealth, brain power, athletic ability, or anything else is an impossibility.
Rich and poor are just labels, useful for statistical analysis and Marxist propaganda if you are so inclined. Rich people are characterized as greedy, yet in their ranks are the majority of philanthropists and most charity, for obvious reasons (they have the resources to give). Might not Andrew Carnegie’s using his wealth to fund public libraries in the USA be a better use of the money than the government confiscating the assets and redistributing it to defense contractors for nuclear weapons or insurance companies as Obamacare subsidies?
Equal pay for equal work sounds good, but it is just an Orwellian propaganda slogan. Does Hillary believe that everyone should get $250 million for a one hour speech to Goldman-Sachs? Or does Hillary advocate everyone give pro-bono speeches; and is she prepared to give everyone a share of her speech money? Obviously, not. Equality is a pernicious fiction, a useful slogan for the French Revolution and Marxists to rally the masses to gain power. Asset redistribution, a topic for another time; but essentially arbitrary. If you cannot find happiness without being the wealthiest person around, then you have a severe spiritual or emotional deficiency which needs something other than more money and assets to be remedied. In times past, it was not uncommon for kings and queens to leave behind their lands and wealth and retire to monasteries to live out their lives in poverty; there was no stigma.
Yes, little people is not really appropriate as it can be read in different ways , it is not a phrase I use but took it to be a sarcastic kick back at the patronizing attitude of state, one that on the opposite hand is used to expand its influence by offering ‘solutions’ to the ‘outcasts’.
It is nerve wracking, I know the sort of pressure those at the top are under ( no, not the president etc. ), and they are ‘only’ human beings. They don’t sit around like villains in a film, policy has to be articulated carefully and there are layers of verification to everything – once event or policy moves in a certain direction , chosen or by result, it may get fully commited to itself.
The Fed will act to assure Hillary wins.
It is that simple.
So we will not know until just before the election. But come December, they will raise or hint at raising. The Fed has killed Pensions and they know that they have waited too long. But then again, other Central Bankers can Fu*kup big time and make whatever the Fed does not matter.
If Global Trade totally collapses prior to our election, all bets are off.