Why The FED Wants To Destroy Economic Growth

[tabs]

Very simple indeed....Today the FED pushed Overnight interest rates to 2.5%. While the 10 year Treasury moved down to 2.78% and the 30 year at 3.01%. With the lower 10 year rate Investors are fleeing to the safe haven of US Treasuries on a bleaker economic future. Further With the FED draining 60B a month out of their Treasury portfolio it should be driving longer term rates higher as the FED is no longer rolling over their portfolio by buying new issue debt. That means that alternative buyers must be found and to entice them to buy higher interest rates have to be offered.. What better way to accomplish the goal then to have a no to slow growth economy? Which then induces a flight to Treasuries and a lower debt service interest rate.

So what is the aim of the FED by raising short term rates but to slow the economy enough to keep longer term rates at a low enough rate so that the Federal government will be able to keep funding their deficits at an affordable interest rates. Having debt service consume the governments tax revenues will not do...

What this means for the American people is more of the same or a worsening of the economic misery. Or as the money pours out of Equities because of uncertainty so goes the "wealth effect" of having a Central Bank created ocean of liquidity.


The question is....why if you are an Investor and want a ROI why would you tie up your cash for 10 years for 0.28% more of an interest rate...why not just stick with the over night rate for SO MUCH LESS RISK.

Then there are the Banks (not to mention nations) who are holding gobs of US Treasuries at a sub 2% interest rate where the value of their bond portfolio is getting hammered as long term interest rates go higher....so there is the issue of bank solvency as a rational to keep longer term rates in check...

So raise short term rates to slow growth and when growth falls off you can once again lower them to about zero...the FED and Treasury want...THEY NEED A SLOW GROWTH ECONOMY SO THAT THEY CAN CONTINUE TO FUND DEFICIT SPENDING...at a low interest rate...


So much for MAGA...and if what I say is true then you truly have entered into a economic death spiral...the FED would in essence be saying that there is no way out from under the increasing debt spiral...

So instead of a USD equilibrium they are trying to maintain an interest rate equilibrium.

[Chocaholic]

Economic misery. Only you would describe our current economy that way. Full employment, very low interest rates, high consumer confidence, strong GDP and the list goes on. Misery, indeed.

[tabs]

Originally Posted by Chocaholic

Economic misery. Only you would describe our current economy that way. Full employment, very low interest rates, high consumer confidence, strong GDP and the list goes on. Misery, indeed.

They do not want you to be happy...they want misery to keep you in the safe haven of low interest rate paying Treasuries...they have to keep demand for them up and if everybody is happy people will invest in other things..

The reality of it is that your prosperity has been bought by creating debt...lots and lots of debt. So now Wimpy you have to pay for those hamburgers you have been eating on credit.

[Jim Richards]

Hell yeah! You’d think they were agents working on behalf of a foreign adversary! Oh, wait, that’s the orange fella.

[tabs]

I will tell ya straight out that this pov of mine is really really cynical....the logic of it is straight out of Alice in Wonderland...but as I have pointed out so many times before we have entered into the Alice In Wonderland spin zone long ago...

Reality over the years has taken so may twists and turns that you can not tell what is fake or what is real anymore...nothing is as it meets the eye...

[tabs]

Originally Posted by Jim Richards

Hell yeah! You’d think they were agents working on behalf of a foreign adversary! Oh, wait, that’s the orange fella.

Lets not get political here..U notice I did not say his name or that of her name nor either political faction....this is all about Monetary policy...and what they are doing..

Politics is a sleight of hand side show to divert your attention...a ruse for the square toed tank town hayseeds..you have been given the double shuffle shake.

Monetary policy is where the real action is happening.

[Jim Richards]

True. Like giving corporate America a huge tax break, and instead of paying down corporate debt or increasing R&D, they gave dividends and bought back stock. The fed govt is in a lot of debt, so their prescription to solve that is to reduce their revenue by giving that huge tax cut, assuming increased corporate earnings will make up for the initial revenue loss. Hahahaha! The Fed can’t fix stupid, just smooth out the bumps along the way.

[Jim Richards]

Originally Posted by tabs

Lets not get political here..U notice I did not say his name or that of her name nor either political faction....this is all about Monetary policy...and what they are doing..

Politics is a sleight of hand side show to divert your attention...a ruse for the tank town hayseeds..

Monetary policy is where the real action is happening.

Hey, what’s political about orange people?

[tabs]

Originally Posted by Jim Richards

True. Like giving corporate America a huge tax break, and instead of paying down corporate debt or increasing R&D, they gave dividends and bought back stock. The fed govt is in a lot of debt, so their prescription to solve that is to reduce their revenue by giving that huge tax cut, assuming increased corporate earnings will make up for the initial revenue loss. Hahahaha! The Fed can’t fix stupid, just smooth out the bumps along the way.

To give them a benefit of doubt...they had to take the gamble to see if it would work..otherwise they might of just sat around doing nothing while waiting for the end to come. You also needed Entitlement reform which once it wasn't going to happen he went home...

The tax break was a nibbling around the edges fix...for a larger systemic problem. It wouldn't, couldn't have fixed shyte...but they had to try SOMETHING..Anything????

[KFC911]

My sky was Carolina Blue all day long...it's still up there. I'll check again a year from now....

I listened to JP's speach....The FED members are doing as they have stated all along...surprise, surprise.

Blah, blah, blah....I liked what he said.

[Jim Richards]

Tabby, every time they control government, they take the gamble. The most wealthy always wins, the rest of us enjoy their golden shower. And the economy always tanks.

KC is right. Stop blaming the Fed for doing what they’ve planned all along.

[Sooner or later]

Originally Posted by KC911

My sky was Carolina Blue all day long...it's still up there. I'll check again a year from now....

I listened to JP's speach....The FED members are doing as they have stated all along...surprise, surprise.

Blah, blah, blah....I liked what he said.

I'll make his head explode....

The Fed is actually doing a good job. They have managed to get rates back to normal while unloading a bunch of debt from 2008 without crashing the economy. Still a long long way to go.

[Shaun @ Tru6]

Cheap money and more buyers than sellers in the stock market have created a corporate debt bubble. Total corporate debt is over $9 trillion now. Seems like a good time for stock buybacks with the corporate tax cut windfall, no?

add in:
No wage growth
Trade and tariff uncertainty ultimately netting out to inflation
Protectionism
Banking deregulation
National debt at $22 trillion
Global market on the decline

What could go wrong?

[Jim Richards]

These guys won’t be happy until their latest bubble bursts.

[Shaun @ Tru6]

I have to research how all of the corporate debt has been collateralized. What's backing it? And who has bought it.

[wdfifteen]

Originally Posted by tabs

To give them a benefit of doubt...they had to take the gamble to see if it would work..otherwise they might of just sat around doing nothing while waiting for the end to come. You also needed Entitlement reform which once it wasn't going to happen he went home...

The tax break was a nibbling around the edges fix...for a larger systemic problem. It wouldn't, couldn't have fixed shyte...but they had to try SOMETHING..Anything????

Yes, they took anything, and it was the wrong gamble. After all the jawboning over all these years about how small business is the engine of the economy, they gave a big tax break to BIG business - corporations who have no interest in the prosperity of main street- and fu**ed small businesses who are on the streets innovating and employing people - right in the ass. Instead of investing a trillion in debt in small business, they put the nation further in debt for the benefit of corporations whose only interest in the United States is how much money they can make off of it's citizens.
We (Americans) were betrayed by the so called "Tax reform."

[Jim Richards]

Just over a year ago, J. Yellen warned about the tax cuts potential to make it harder to fight a recession. And we are slipping into a recession.

https://money.cnn.com/2017/12/13/news/economy/federal-yellen-tax-reform-recession/index.html

But hey, tabby wants us to give “them” the benefit of the doubt.

[john70t]

http://forums.pelicanparts.com/off-topic-politics-religion/
Welcome to the jungle.

[brainz01]

Originally Posted by Sooner or later

I'll make his head explode....



The Fed is actually doing a good job. They have managed to get rates back to normal while unloading a bunch of debt from 2008 without crashing the economy. Still a long long way to go.

^^^ This.

It's exactly how the Fed's supposed to it. Without interest rate increases, the Fed has little other tool kit than printing money. They're a few years late, IMO, but that's unfair quarterbacking in hindsight.

And believe it or not, some people actually own long term treasuries precisely as a way of profiting from market volatility. When bond yields fall (as from a flight to quality or falling interest rate environment), bond prices rally.

I've been meaning to share this here: Ray Dalio's Principles For Navigating Big Debt Crises. I highly recommend it:

https://www.principles.com/big-debt-crises/

Yes, you have to register, but hey, it's a free book that's actually got a lot of good information.

It's not exactly a page turner, but if you spend a couple hours on the first 50 pages or so you'll get the gist. The rest of the book is actual case studies of all the big debt crises in the last century. It's interesting to see the steps various different governments took and what the news aeticles of the day reported about the actions. In many respects, I was surprised by how much history rhymes. We're not dealing with anything new.

And for the record (and some much needed perspective) all of those countries still exist and many have thrived. Yes, there was much suffering for some (and in some cases, for extended periods), but such things are (unfortunately) a part of life. This too will pass...

BTW, a key distinction in how much pain and suffering is endured is whether a country's debts are foreign denominated. If they arent foreign, then a country can always reset things by printing more money. Yes, that has wealth transfer implications (from savers to borrowers), but it's generally faster/way less painful than repaying money in someone else's currency.

That said, all else equal, rising interest rates areindeed likely to [continue to] put pressure on equities in the near term. Whether such will be economically disastrous is hard to predict. The Fed's job is not an easy balancing act. I wish them well for our collective benefit and salute their demonstrated independence from short term political gains. History shows that lack of central bank independence is generally not good for long run economic prosperity.

Sent from my Nexus 6 using Tapatalk

[tabs]

Originally Posted by john70t

http://forums.pelicanparts.com/off-topic-politics-religion/
Welcome to the jungle.

I very purposefully said nothing about politics..this is about the economy and FED monetary policy..