Best of the Week
Most Popular
1.US Dollar Crashes, Gold And Bitcoin Skyrocket As Economic Recovery Lie Is Exposed - Jeff_Berwick
2.Now Obama Warns Americans to ‘Be Prepared’ for Disaster… What Does He Know? - Jeff_Berwick
3.EU Referendum - Britain's Immigration / Migrant Crisis Explained - Nadeem_Walayat
4.EU Referendum - British People vs Establishment Elite, Vote LEAVE an Act of Defiance! - Nadeem_Walayat
5.Prominent Billionaire Investors Warn of Financial Crash, Quietly Position Themselves - MoneyMetals
6.Bankers Warn of BrExit Financial Armageddon if British People Vote for Freedom - Nadeem_Walayat
7.Bad U.S. Jobs Report Prompts Stocks Bear Market Rally Towards New All Time Highs! - Nadeem_Walayat
8.Gold And Silver – Friday May Have Marked A Pivotal Turnaround - Michael_Noonan
9.EU Referendum - British People vs Establishment Elite, the Illusion of Democracy and Freedom - Nadeem_Walayat
10.Felix Zulauf: Monetary Stimulation Creates Bubbles, Not Prosperity Nor Growth - GoldandLiberty
Free Silver
Last 7 days
Investors Map Post-Brexit Strategies Amid Global Market Upheaval - 26th June 16
Gold Price Weekly COT Update - 26th June 16
First the UK, then Scotland ... then Texas? - 26th June 16
Stocks Bear Market Resumes or Just More Noise - 26th June 16
Gold And Silver: Security, And BREXIT - 25th June 16
Dow, Euro & Brexit Recap - 25th June 16
Resistance Holding Gold Stocks after Brexit - 25th June 16
Venezuela vs. Ecuador (Chavismo vs. Chavismo Dollarized) - 25th June 16
Gold, Silver And PM Stocks Summer Doldrums Risk - 24th June 16
Here’s Why China “Economic Hard-Landing” Worries Are Overblown - 24th June 16
Jubilee Jolt: Markets Crash, Gold Skyrockets as Britain Takes Brexit - 24th June 16
BrExit Morning - New Dawn for Britain, Independence Day! - 24th June 16
LEAVE Wins EU Referendum - Sterling and FTSE Hit Hard, Pollsters, Bookies and Markets All WRONG! - 24th June 16
Trading BrExit - British Pound Plunges, FTSE Stock Futures Slump on LEAVE Shock Referendum Win - 24th June 16
EU Referendum Shock Results Putting BrExit LEAVE in the Lead Hitting Sterling Hard - 24th June 16
Final Opinion Poll Gives REMAIN 52% Lead, Bookmakers, Markets and Pollsters ALL Back REMAIN Win - 23rd June 16
Does BREXIT Matter? Outlook for Sterling - 23rd June 16
Keep Calm and Vote BrExit - Last Chance to Break Free of EU Superstate - 23rd June 16
Here’s the Foreign Policy Trump and Clinton Really Want - 23rd June 16
Details Behind Semiconductor Stocks Leadership - 23rd June 16
Trading BrExit - Stocks, Bonds, Sterling, Opinion Polls, Bookmaker Odds and My Forecast - 23rd June 16
BrExit Looks Set to Win EU Referendum, Final Opinion Polls Give LEAVE Lead Over REMAIN - 22nd June 16
Proof that the Gold Bears are Wrong - 22nd June 16
Here’s a Trillion-Dollar Investment Opportunity for Those Few with No Debt - 22nd June 16
BrExit to Save Europe from Climate Change Refugee Migration Apocalypse - 22nd June 16
Increase In U.S. Rig Count Will Not Cap Oil Prices - 22nd June 16
Are Copper and China Stocks Set to Rally? - 22nd June 16
SPX May Break Its Trendline - 22nd June 16
Believe it or Not: More Kids Live At Home Now than Since The Great Depression - 21st June 16
EU Referendum Latest Opinion Polls Show LEAVE Halting REMAINs Surge - 21st June 16
British Pound Outlook - BREXIT, Europe and You - Does your vote matter? - 21st June 16
Fascist Victory Behind the European Union - 21st June 16
EU Referendum Opinion Polls Analysis Shows Strong Momentum in REMAINs Favour - 21st June 16
Is It Time to Dump Gold and Buy Platinum? - 21st June 16
Could Central Bankers Be Gold and Silver's BIGGEST Allies? - 20th June 16
Words Still Mean Things – Brexit With Graham Mehl - 20th June 16
Baroness Warsi the Manchurian Candidate Quits LEAVE for REMAIN, Boris Johnson Next? - 20th June 16
FTSE Soars, Stock Markets Bounce on LEAVE Polls Surge, Bookmakers Widen BrExit Odds - 20th June 16
Brexit Would Trigger Devolution of Europe - 20th June 16
Stock Market Week Of Uncertainty - 20th June 16
Will Gold’s Bullish Price Chart Outperform Gold’s 5 Bearish Indicators? - 20th June 16
Bonds And Stocks At All-Time Highs: Are Markets Confused Or Broken? - 20th June 16
Silver Sleeping On the Job - 19th June 16
BrExit Odds Sink, REMAIN Polls Boost by Jo Cox Killing by Radical Right Extremist, Conspiracy? - 19th June 16
How Elliott Waves Tell You When to "Jump In" & When to "Jump Out" of Markets - 18th June 16
Stock Market Inflection Point During Bifurcation - 18th June 16
Gold And Silver – Insanity Is World “Norm.” Keep Stacking! - 18th June 16
Gold Stocks - Bull Markets that Follow Epic Bears - 18th June 16
The Fed Giveth and the Gold Bullion Banks Taketh Away… - 17th June 16
Brexit: "The Vote Heard Around the World" - 17th June 16
Gold Stocks Summer Breakout? - 17th June 16
Stock Investors Get Higher Returns and More Dividend Income - In Less Time With Less Risk - 17th June 16
How to Use the Gold-to-Silver Ratio? - 17th June 16
Inflation, Deflation & Associated Trading Prospects - 17th June 16
Overnight Markets Struggling to Stay Flat - 17th June 16
Gold Price Surges to Highest in Nearly Two Years On Central Bank and Brexit Haven Demand - 17th June 16
Stock Market Thinking Upside Down; Dow 18k Still Key - 17th June 16
Jo Cox MP Terror Attack Killing Claimed for "Britain First" - Witness Report - 17th June 16
Stock Market, Iron Ore, Bitcoin – Is Silver Next for Chinese Momentum Investors? - 16th June 16
EU Referendum Campaigning Suspended Following Shooting of MP Jo Cox, Suspect Named as Tommy Mair - 16th June 16
Why People are Migrating to the UK, Illegal Immigration, Housing Crisis Consequences - 16th June 16
Stocks Fluctuate Following Recent Decline - Bottom Or Just Pause Before Another Leg Down? - 16th June 16
The US Consumer-Driven Economy Has Hit a Brick Wall - 16th June 16
Bitcoin Price Going Parabolic Again, Now At $730 and Up 60%+ In Last Three Weeks - 16th June 16
China's Hard Landing Has Already Begun! - 16th June 16
Crude Oil Price - Oil Bears vs. Support Zone - 16th June 16

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Why 95% of Traders Fail

Rising U.S. Interest Rates? Never Mind

Interest-Rates / US Interest Rates Feb 19, 2016 - 06:19 PM GMT

By: John_Rubino

Interest-Rates

It was always a matter of when, not if, the financial markets would tell the Fed to stop raising interest rates. And it appears the message has been received:


Fed’s Bullard speaks against further interest-rate hikes

(MarketWatch) — A Federal Reserve official who was one of the strongest advocates of raising rates last year now believes the central bank should refrain from further boosts in borrowing costs for now.

In a speech in St. Louis on Wednesday, Federal Reserve Bank of St. Louis President James Bullard said declining interest expectations and declines in financial markets argue against further boosts in the central bank’s short-term interest rate target, which now rests at a range of 0.25% to 0.50%.

“Two important pillars of the 2015 case for U.S. monetary policy normalization have changed,” Bullard said. “These data-dependent changes likely give the [Federal Open Market Committee] more leeway in its normalization program,” he said in reference to central bankers’ plans to raise rates further this year.

“Inflation expectations have fallen further,” and with the losses seen in markets, “the risk of asset price bubbles over the medium term appears to have diminished,” he said. That takes pressure off the Fed relative to last year, when the price outlook and high asset prices pointed to a need for higher rates, the official said.

Bullard spoke in the wake of the release of meeting minutes from the Fed’s January policy meeting. Having boosted rates in December the Fed refrained from action last month. The minutes showed policy makers were struggling to come to terms with why markets were performing so badly against a relatively sound U.S. economic outlook.

So much good stuff here.

“Policy makers were struggling to come to terms with why markets were performing so badly against a relatively sound U.S. economic outlook.” Apparently the highly-trained professionals at the Fed, when gauging the health of the economy, overlooked collapsing commodity prices, a shrinking manufacturing sector and soaring levels of student and auto debt, and saw only the fictitious headline unemployment number.

The reason for this apparent blind spot goes right to the heart of the Keynesian/Austrian debate: The former (who populate government and academia) don’t include debt in their models, and so tend to view any kind of consumption or jobs growth as unambiguously good regardless of how much borrowing is necessary to achieve it. So rising sub-prime auto loans, for instance, are a healthy sign because they signal more people buying more stuff.

Austrians, in contrast, focus on society’s balance sheet and view soaring leverage — especially for things of questionable value like cars and many college degrees — as a potential problem. Guess who is always right at big turning points?

Other data points that have been screaming “don’t raise rates” include:

Margin debt — created when investors borrow against their stocks to buy more stocks — soared to a new record in 2014. For mainstream economists this was fine because it meant people were optimistic and willing to both speculate and — due to the wealth effect of rising equity prices — buy more houses, TVs and SUVs. Austrians would simply note what happened the previous two times investors leveraged themselves to the hilt and assume that a reversal is imminent.

The velocity of money — the rate at which dollars, once created, are spent — has been plunging as debt has been soaring. To mainstream economists, this is “puzzling.” To Austrian economists it’s obvious that if you borrow too much money you’ll spend less in the future because you’re either unwilling or unable to borrow more.

One final illustration of Fed cluelessness is the idea that plunging commodity prices boost the economy by putting money into consumers’ pockets. See Janet Yellen: Cheap oil is good for America.

Here again, this ignores the related leverage. Several trillion dollars have been borrowed via bank loans and junk bonds to fund a vast expansion of US oil and gas drilling capacity. Should a big part of that debt default — which now looks certain — the impact will more than offset cheaper gas. See Commodities’ $3.6 trillion black hole.

We could do this all day. For almost every aspect of the modern global economy, the people pulling the levers seem to be ignoring the single biggest indicator of systemic health, which is the balance sheet. So the Fed, ECB, Bank of Japan, Congressional Budget Office, and most university economics departments will continue to be surprised by what happens and will, as a result, keep doing the wrong thing.

Now, if raising interest rates was a dumb thing for the Fed to do, does that mean cutting interest rates would be smart? No! The lesson to be drawn from today’s mess is that the way to avoid a debt-driven crisis is to avoid borrowing too much in the first place. Once a society is sufficiently over-leveraged there’s really nothing it can do but let the inevitable bust happen and resolve to do better next time.

By John Rubino

dollarcollapse.com

Copyright 2016 © John Rubino - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife