The Fed...I was not correct....
 

Tabby was right, fint was right, as a fiscal conservative....I was wrong :(. I have been 100% behind what the Fed has been doing with ultra-low interest rates to banks, and STARTING to make a dent in the 4.5T they "borrowed" to fix the aftermath of '08/09. But they indeed have done a 180 turn due to the recent data...and now 4T will remain on their balance sheet forever? That's BSheet imo. Discuss...

G. Edward Griffin was right.

_

Raising debt by artificially keeping the interest rates near zero for 8 years was no more a good idea than raising too much, too fast to try to "pay it back". In both cases, the wrong people have to share too much of the load too fast...which damages one part of the fragile economy at the expense of another...ultimately creating more debt than you gain by the higher or lower rates. The Fed just miscalculated and got a little ahead of itself. "Borrowing" to give money to one group of taxpayers...and later expecting to get the money back from another group...or even the same group is simply too much intervention Wealth redistribution never works like the folks doing it expect. Raising rates is much like raising the rents in your rental. Even if you are below market, if you raise them too fast, expect your tenants to go elsewhere (even if they are still getting a great deal). The month that you go unrented to get the extra $100 on the $1000 rent will take wear or more to recoup (or worse as you usually have marketing costs).

The increase was so much so fast that people were starting to lose homes in droves again to foreclosure in some areas.

I respectfully disagree....I am not alone...time to realize that 2% (unstimulated GDP) is the normal....and continue the recovery out....

It has been hosed .... if they keep 4T on their balance sheet forever as I just read...

Tabby?

The rates should have risen much sooner, and faster after the housing debacle....

Low interest, variable APR has allowed another credit driven mess....5 yr furniture, 7 yr auto, ...

We're not even back to "neutral" on rates...and that 4T BS forever is just that :(.

That was my point. You cant fix 6 years of juicing the economy to mask/make up for an anti-business Federal policy in a single year. The impact is too great. Especially on folk too young or too stupid to remember the past or recognize it for what it is.

A good example is a rental property I own. It has an adjustable mortgage that has increased about 2 percent. In addition, HOA, taxes and insurance also increased dramatically (catch up after the real estate crash). I was already losing well over $1k per month (ignoring increase in equity due to increase value and paying down mortgage). Now, it is almost $2K. While I can afford to lose $2K per month, other folks in the same neighborhood cannot. It has started a wave of foreclosures. Some were family homes and others were rentals like mine (that will leave the rental market forever reducing the number of low cost rentals). Of course, it will eventually drive the rental income of mine up due to lack of competition...but it also creates a glut that keeps other homes underwater (zombie foreclosures Tabby talks about) and keeps first time buyers out of the market. It also means that a lot of other things bought on time went up very fast (cars, appliances, etc.)...preventing the people with those loans from buying other stuff. Small amounts are tolerable and people make adjustments. Rapid increases, not so much.

You have your perspective, I have mine.

The "juice is still on" however....the Fed began a well laid out strategy back in '15... of raising rates...pretty consistent 2.5 gdp...good enough for some ;). Anybody hitched to the past...your risks, your problem. Easy, cheap credit ain't the answer....we're ten years in....how long does it take your way? Caused the Fed has turned on a dime....now what...pass it on forever....

4T on the Fed's balance sheet? You think that should continue to unwind....I sure do.

Actually cheap credit is the problem. 8 years of it. But it is like crack. You cant give it away for 8 years and then stop...telling the addicted that they should just suck on a life saver and start running 5 miles a day to atone/fix their body.

With respect to my example, 2015 is recent. My loan in the example (like may others) is from 2006 where the home lost 65% of its value...and the home is still worth more than $100K less than the home cost. While losing a few thousand a month is chump change for me...it may not be for others. The rapid increases were too much for small businesses and small investors. The economy was showing signs of too much increase in rates too fast (both in the job market and the stock market). Too much was spent and too long was wasted. You cannot make up for 8 years in one or two.

Maybe the mistake was giving away all that money to start with...and asking others to pay for it now.

Start yer own damn thread about the still historically low Fed interest rates....are you dense? I'm outta this one....

What do you think leaving of leaving 4T on the Fed's BSheet permanently...as every post I've made has asked and that's what this thread is ALL about...now...I hope :(.

Anyone else ;)?

I'm sorry...I thought that was what we were talking about. I guess I don't understand the question. How would you suggest we take the $4T off of the Fed's BSheet without increasing short term rates? Magic?

They are tied together (interest rates and Fed Balance sheet). As you rapidly reduce the Fed BSheet, you also rapidly reduce liquidity because banks have used those funds (bonds sold to Treasury) to meet stricter, post-recession reserve requirements (banks have less ability to lend). If you reduce liquidity...businesses cannot borrow to grow/expand and interest rates creep upwards (demand). Of course it should eventually be unwound a bit..maybe as far a the approx. $1T before the bank crisis, just not so fast. The resulting increase in short term rates would be very hard on the economy. The 4T is less dangerous that fixing it too fast. Just the .5T or so already drained had begun to have an impact (I was referring to earlier).

I'm not sure what the right size for the Fed's balance sheet is. I've read that the amount of money has grown greatly so the Fed's balance sheet can be larger than it used to be.

I'm also not sure that it makes a difference where the bs stabilizes. If the Fed buys $1 of a newly issued Treasury or agency bond, while at the same time collecting $1 of principal as an older bond matures, nothing really changes. No additional money is pumped into or removed from the economy.

In other words, it is the change in the Fed bs size, not the size of the bs, that really matters.

(Within limits, which we're probably not near.)

What's the right level for rates? I don't know how to decide that except by looking at the effect of rates.

Rates so low that they encourage people and companies (and governments) to accumulate excess debt burdens are too low. Rates so low that they encourage diverting capital to paper assets (stocks) and debt-dependent activities (m&a, share buybacks) instead of to productive investment (capex, hiring, growth) are too low. Rates so low that the yield curve inverts (which makes banks stop lending, since deposits cost them more than loans generate) are too low. Rates so low that people who should be in low risk investments (savers) are forced to chase risky investments (become speculators) are too low.

I think we've seen some of those conditions.

Rates so high...you can fill in the list.

I don't think we've seen much of that, except for a brief 20% drop in stock prices (investor tantrum). That's not nothing, of course, but bull markets have to end sometime.

Some people don't get that if the FED didn't juice the system with massive liquidity you would all be living in mud huts. What don't you get when they said "meltdown?"

The FED isn't in control of anything...they are forced to keep juicing the economy. If they reverse policy Equities fall of a cliff..as you saw in December.

The question is how long can they keep on juicing and the govt borrowing before the house of cards all falls down.

Tantrum??? That's a dumb thing to think. The bottom line is that the WS Boyz understand that without the FED having an accomodative policy the economy falls off a cliff.. and they get real nervous and want out..the system now only works with juicing and deficit spending...


Both u and the other articulators of opinion bend over and take it like a woman.

The FED is only reacting to extingencies..

You folks think they are in control of events? Your denial makes you delusional...cray cray...December should have proven to you that reality by their reversal of policy. The bottom line is that you continue to deny is that the American consumer is tapped out and the global economy is not sustainable.

Weasel weasel dodge and obstruftication will do you no good as you continue to twist in the face of reality.

Everything was going along very well with the early stages of the Fed reducing their balance sheet imo....while continuing to get the still ultra low rates back to normal. It's a HUGE task...they were able to jack them up much rapidly just a few years earlier...after 9/11....but in unknown territory....they couldn't raise rates from 0, when stimuli like the QE that ended in '13 (I think) was buying (borrowing) ...then '14 produced a couple of high gdp qtrs....deflation was over....time to dig out. So they began....
Early Dec, "I'm a tariff man" tweeted/spoke, and the markets immediately dropped like a rock...past long overdue correction territory...

Then the Fed turned from what I considered a very fiscally conservative, but somewhat aggressive "payback"..... it WAS working except for those hitched to historically low variable interest rates. The conservative in me says....(within reason)...I don't care...live within your means and don't depend on cheap credit...it's the opium of our society....worse than ever.

fint's a credit junkie ;)

When I read that the Fed was NEVER gonna reduce their 4T bs ANYMORE, at all....ever. Well....they caved to a correction in the still juiced equity markets...I'm a tariff man spoke and here we are :(

Just scratching my head....fint, will you loan me a few T....I'll pay ya back....I promise...my credit's good :(

Let's be honest, the fed screwed the pooch long ago as did our federal government before, during and after the financial collapse. As tabs has stated repeatedly and correctly the American consumer drives the economy. Rising interest rates were having a negative influence on consumer spending. Still say the December numbers have to be revised upwards

A lot of noise has been made about GM and Ford sales and the hurt it's putting on them. How do we fix it? Keep rates low and let that bubble grow brother! Get ready for another round of bailouts , it's coming.

Actually, stupidity by the Administration with the massive bailout of bad loans (HARP, etc.) and pushing short sales which were massively fraudulent drove the property values so low in some places that there was no exit. Particularly with strategic foreclosures and bankruptcies. Those of us that paid our bills and didn't borrow from the government were screwed. Although I did buy the house with a conventional adjustable rate mortgage, I did so temporarily so I could close quickly. I fully intended to refinance into a VA or conventional fixed rate in a few months. Then the market crashed and I really had no viable way to refinance as the $700K home was valued at $280K. I would have had to bring $400K to closing as a down payment on a $280K house. Considering all my other investments also crashed...and both my wife and I lost our "secure govt jobs" at the same time...it really was not an option.

While I have fully recovered and then some...I am still paying on that mortgage (hose is worth about $500K now). It is not a problem for me to waste a few thousand a month...but apparently it is for other folks (as the foreclosures are ramping up again). I thought my example was pretty clear that was the case.

Your time line is off, and it makes your conclusions off as well.

QE3 was announced in 9/12, where Equities were off to the races, Bullard said on CNBC on 2/23/13 that they would Taper Off finally announcing the Taper after a FED meeting several months later. Finally ceasing QEing in 12/14. After the end of QEing in 12/14 Equities remained more or less flat until Trump won in 11/16.

In 12/17 they started taking 50B a month out of the economy to reduce their balance sheet. In 2/18 Powell took over from Yellsin announcing that the FED would go to a NEUTRAL policy while raising interest rates The first big break in Equities came in February of 18...recovering to new highs in September 18...

With a continued hard line in the face of a projected softer economy Equites broke and ran in 12/18...ONLY TO MAKE A TURN ABOUT ON 12/26/18 AFTER THE FED MADE CONCILIATORY COMMENTS ABOUT POLICY (starting on 12/21/18 with the Pres of the NY FED)>>.


It is not a matter of being addicted to low interest rates...the low rates are a necessity especially since the US is encumbered with so much debt that needs to be serviced. The US is borrowing money to pay the electric bills. Is that simple enough for you to understand..Without deficit spending the economy does not generate enough of revenue to keep the economy afloat. The American consumer is a spent force...

The global economy needs financially healthy consumers to buy the crap that they make...if the consumers do not buy the economy tanks...

So the FED has announced that they are gona keep the balance sheet at 4T or there abouts...FOREVER?

Some surprise that is...NOT!

The problem with the FED just like you boyz is...they think/thought it can be fixed, that there is a solution..if only they find it...so they have tried this and that...all to get back to what was the old normality...None of it has worked...and now they are admitting with the Forever statement that there is nothing that they can do...

I told you long ago that when the leadership cant remedy a situation new leadership is found and when that fails despair sets in...and that the same thing is true that when you try all the tricks in the book and nothing works...you realize it can't be fixed...and despair sets in and a acceptance of your fate.

The FED to have made that statement must have seen something very mushy in the data about the economy..That to maintain stasis in the economy they can not rock the boat..

The question becomes by maintaining their balance sheet does it cause dislocations throughout the world? In other words how long can they keep the music playing before it stops..

The balance sheet is another closet of IOU's. There isn't sufficient dollar liquidity to go around. The game is all about confidence. The dollar is in demand by Brits and Europeans especially. No worries about it in the near term.

The yield curve, as I understand it, inverts for a different reason.

It inverts because demand for long term Treasury bills goes up compared to short term treasury bills. The bidding process on bills mean that the long term ends up at a lower rate.

Inverting the yield curve is also a by product of rapid rate increase.

These were my understandings based on what was shared in a previous thread.

I'm curious why you differ?

What I was thinking was, if the Fed is going to raise short rates (via Fed Funds rate), it doesn't want to hold long rates down (via QE) because that makes inversion more of a risk.

Long rates are low for various reasons: inflation expectations are low, growth expectations are low, perceived risk is substantial, there's more money than available places to invest, and I'm sure other reasons I don't understand.

The Fed wanted to raise short rates for various reasons but a big one is to get some room to drop them again in the next recession. But the difficult thing is even though some aspects of the US economy are saying it is time to raise rates, inflation and growth aren't high or even really accelerating. So the Fed was raising short rates (from something like 0.25% to over 2%) and long rates weren't rising as much (from 1.35% to just over 3%, and now below 3%).

The yield curve is thus flattening and is actually partly inverted already.

I don't fully understand why an inverted yield curve is a strong recession predictor. Maybe it is the crimp it puts on bank lending that helps cause a recession. Maybe whatever is starting a recession drives the inversion so the yield curve is just a signal not a cause. I dunno. But investors believe inversion -> recession so that's good enough for me.

Fed doesn't set rates. The market does.

An inverted yield curve can be a warning of a coming recession. Investors that are concerned about a recession bid up the price of longer term bonds which lowers the rate. They think rates will decline in future long bonds so they lock in the current higher rate now. High demand causes rate to decrease. With fewer people bidding on the shorter yields the rate must be raised to sell the bonds due to lack of demand.

The Fed sets Federal Funds rate and not T Bill or T Bond rates.

You can make a killing on bonds if rates trend lower.

Say I spend 10,000 on 5 year bonds at 4%. If rates decline to 2% you win the the scratch off lottery,. You have 10k in 5 year 4% bonds. Everybody else has to buy the 5 years at 2%. If you elect to sell you will get significantly more than 10k for your 4% bond. So people go long if they expect lower rates are approaching.

You get killed on bonds in a rising rate innvironment. You paid 10k for a 4% 5 year bond. If rates go up to 6% you are holding a 4% bond when new issues are going for 6%. You can hold on to your low rate bonds or sell them to buy the 6%. Nobody will give you your full ten grand for your crappy 4% yield when they can buy 6% for the same 10 grand.

^^^^ Me no like bond funds...also have to ride the inflow/outflow of the masses...individual bonds, short term, under or at par value works for me...but timing is everything ;).

Some bonds I purchased right before Tariff man spoke have returned almost 10% already with a 5% guaranteed evey year to come....that's what a dip does ;). I was burned in bond funds too years ago....so I do have other stories :(.

Which way is the Fed wind gonna blow...I dunno?

They threw me a nasty slider with their abrupt reversal (with some new voting members recently)...due to equity markets...but I can still hit the other pitches...sometimes :).

2.5% is still too low for Fed overnight rates to banks imo...and has risen from the ashes much faster before...

Get yer cheap credit here...come one, come all...

Nuthin' wrong using credit wisely imo....most don't :(

Yep it is all about confidence..the world has confidence in the FED. The FED realizes it and acts accordingly...their reaction to December proves it.

As a fiscal conservative...100% behind their plan....until Dec. the reaction proves the opposite for me. You were right....I did not think the unanimous Fed voting board would change members/paths so abruptly..they did...due to equity markets.
I have lost a bit of confidence actually...

But the talk of not reducing their 4T balance sheet ANY more, ever...that's what this thread is supposed to be about...not low interest rates.

I still think overnight rates need to be at least neutral...2.5 isn't quite there imo...but ween the credit junkies like fint ;)...

This recent talk of keeping 4T forever is the topic of this off topic thread....thanks JYL...as usual, interesting perspective you have...

Is there a 10T Fed balance sheet in the future?

Stop whining like a little B and take it like a..a ..everybody has got to pay their fair share.

Bullard said 7T no problem...beyond that is no man's land.

I seem to recall that he always seems to be quoted...the extreme fiscal credit liberal of all the Fed board members....now he gets to vote :(. I just disagree with him....he's whined since '15, as the other members were voting....unanimously...every single one, every .25/qtr increase...for two years as I recall.

Now? Gonna be interesting....

Where are the conservatives? My kind...

Hey Tabby...I just read some of your earlier posts...I stand corrected on the details....

I seriously was NOT paying close attention during those years....I made $ fishin'....I used plastic worms juiced with sumthin' though...

That's yer job ;)

The only credit fint uses is to buy a house (mortgage). Most folks just don't pay cash.

The rates should have never been played with in the first place. Two wrongs don't make, remember?

Take away their knob to fiddle with things they shouldn't fiddle with because of POLICICAL MOTIVATION, and we won't have to discuss how to undo the damage.

In the mean time, I'm going to play the selfish miser card and say leave the market alone! Let me wrack up another (you know what) before retirement and once I've put it all in money-market and T-bills for safe-keeping and security, they can raise rates all they want. ;)

flame away.

Sam, without fed intervention in 2008 the money supply would have dried up. There would have been little money to lend. With less money to lend rates would have climbed significantly. Fewer auto loans. Fewer home loans. Fewer business loans. An even deeper recession if not worldwide depression.

The problem started decades ago. LTCM went bust and we ignored the problem and let it build.

Watch The Warning on PBS Frontline. Read up on Brooksley Borrn and how she was railroaded out by Greenspan and his cronies when she had the gall to suggest we needed regulation in the derivitive markets

A quick clip on the show. The full episode is available online


https://m.youtube.com/watch?v=ACkiKVtF3nU

I'm just messin' with ya fint....

SOL is spot on too ....

Wah :(.....;)

Your Conservativism really leaves you out to lunch. Unfking believable...

What don't yo get about the term "MELTDOWN" If the powers that be had let it all go to he11 you would be living on the streets and eating out of a garbage pail...if you were not already dead. The Banking system was Tot in 2008, 72 hours away from a COMPLETE COLLAPSE. Without a Banking system the economy collapses as there is no means to pump money through the system.

That just does not seem to have scared you? Which either make you a gdm fool or nutz?

So the powers that be did what they thought would work, as it had fixed it in past crisis's. Since I like having a roof over my head and eating 3 square aday I have no complaints. What they didn't realize is that the problem was SYSTEMIC and not generic..You REALLY DON"T GET THAT EITHER. The Germans on the eve of WW2 had no idea of what would befall them in 1945. If they did would they have been so happy to follow Adolf? A life changing event took place in 2008. After 2008 the powers that be continued to tinker with the system to restore it to it's former luster, aka as trying to fix Humpty Dumpty.. YOU CAN NOT FIX HUMPTY DUMPTY and slowly as one thing after another has failed to remedy the situation they are slowly coming to see that it can not be fixed. The best that they have been able to do is stabilize the system with all their efforts. Now you may not wnat them to do that and they tried to wean you off the juicing and you saw what happened in December..Equities were headed for the abyss..probably giving back everything since 2012...how would you have liked that...more than likely your job would have been gone as the mainstream economy would have taken a hit. Your financial assets would also have evaporated as well...leaving you with your dick in your hand..

So the sytem as it stands is broken...the news for you and the FED is that it was broken LONG BEFORE 2008..the system was being juiced for decades to keep the illusion of prosperity alive..to make dum guys like you think you are Prosperously Fat Bergers.. The chickens just came home to roost in 08 that's all..So before 08 home wasn't what it seemed to be...

You have been living a fking LIE since the 1980's..as all of us have been. Now our day of reckoning is upon us...

I saw all this shyte happening right before my eyes and have not been fooled by it..and have been vociferously saying it since 08....