Macroeconomics Has Lost Its Way

By Alasdair Macleod – Re-Blogged From Silver Phoenix

The father of modern macroeconomics was Keynes. Before Keynes there were macro considerations, which were firmly grounded in human action, the personal preferences and choices exercised by individuals in the context of their own earnings and profits. In order to give a role to the state, Keynes had to get away from human action and devise a positive management role for central planners. This was the unstated purpose behind his General Theory of Employment, Interest and Money.

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Emerging Market Crisis Spreads To The Core, Central Banks Face Catch-22

By John Rubino – Re-Blogged From Dollar Collapse

One of the things giving “data-driven” central banks wiggle room on their pledge to tighten monetary policy is the fact there are several definitions of inflation. In the US the thing most people think of as inflation is the consumer price index, or CPI, which is now running comfortably above the Fed’s target. But the Fed prefers the personal consumption expenditures (PCE) price index, which tends to paint a less inflationary picture. And within the PCE universe, core PCE, which strips out energy and food, is the data series that actually motivates Fed action.

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Is this the Most Hawkish Fed Ever?

By Michael Pento – Re-Blogged From Pento Portfolio Strategy

My research shows that this is one of the most hawkish Fed rate-hiking regimes ever. It has raised rates seven times during this current cycle and is on pace to raise the Fed Funds Rate(FFR) four times this year and three times in 2019.

But what makes its monetary policy extraordinarily restrictive is that for the first time in history the Fed is also selling $40 billion per month of Mortgage Backed Securities (MBS) and Treasuries starting in Q3 and $600 billion per year come October. Because the Fed is destroying money at a record pace while the rest of the world’s major central banks are still engaged in money printing (QE) and zero interest rate policies (ZIRP), Jerome Powell’s trenchant and unilateral tightening policy is now causing chaos in emerging markets.

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Stock Markets Hyper-Risky 3

By Adam Hamilton – Re-Blogged From http://www.Silver-Phoenix500.com

The lofty US stock markets remain riddled with euphoria and complacency, fueled by an exceptional bull. Investors believe downside risks are trivial, despite long years of epic central-bank easing catapulting valuations to dangerous bull-slaying extremes. This has left today’s markets hyper-risky, with a massive bear looming as the Fed and ECB increasingly slow and reverse their easy-money policies. Caveat emptor!

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Chairman for People and Arrogant Eurocrat

arkadiusz-sieron   By Arkadiusz Sieron – Re-Blogged From Sunshine Profits 

Two of the most powerful men in the world. Trump? Putin? Xi? Nah. Chairman Jerome Powell and President Mario Draghi. Let’s analyze their recent press conferences!

Powell – Chairman for People

In the last edition of the Gold New Monitor, we promised that we will elaborate on the Powell’s and Draghi’s press conferences. It’s high time we fulfilled the promise.

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“Take A Pill” Consequences

By Gary Christenson – Re-Blogged From http://www.Gold-Eagle.com

Headache? Muscle ache? Back ache? Take a pill! An over-the-counter pill will diminish the symptoms and pain. The consequences will come later.

High cholesterol? Take a pill. There are other ways to reduce cholesterol but none that produce $ billions for Big Pharma. Consequences to your body and finances will manifest in other ways.

High Blood Pressure? Take a pill. There are other means to lower blood pressure, but none that produce $ billions for Big Pharma. Side effects may require other drugs, which will also have side effects.

Economic sluggishness? Take a pill – an extra-large dose of Quantitative Easing. There are other ways to stimulate the economy, but QE bailed out banks at taxpayer expense, increased banking profits, expanded debt, printed $16 trillion from “thin air” and levitated the stock market.

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Next-Generation Crazy: The Fed Plans For The Coming Recession

By John Rubino – Re-Blogged From Dollar Collapse

nsanity, like criminality, usually starts small and expands with time. In the Fed’s case, the process began in the 1990s with a series of (in retrospect) relatively minor problems running from Mexico’s currency crisis thorough Russia’s bond default, the Asian Contagion financial crisis, the Long Term Capital Management collapse and finally the Y2K computer bug.

With the exception of Y2K – which turned out to be a total non-event – these mini-crises were threats primarily to the big banks that had unwisely lent money to entities that then flushed it away. But instead of recognizing that this kind of non-fatal failure is crucial to the proper functioning of a market economy, providing as it does a set of object lessons for everyone else on what not to do, the Fed chose to protect the big banks from the consequences of their mistakes. It cut interest rates dramatically and/or acquiesced in federal bailouts that converted well-deserved big-bank losses into major profits.

The banks concluded from this that any level of risk is okay because they’ll keep the proceeds without having to worry about the associated risks.

At this point – let’s say late 1999 — the Fed is corrupt rather than crazy. But the world created by its corruption was about to push it into full-on delusion.

The amount of credit flowing into the system in the late 1990s converted the tech stock bull market of 1996 into the dot-com bubble of 1999, which burst spectacularly in 2000, causing a deep, chaotic recession.

Instead of letting this (also well-deserved) crisis run its course, the Fed again protected Wall Street by cutting interest rates to unprecedentedly-low levels, something that rational observers warned would cause another bubble of some kind. Sure enough, the resulting housing bubble expanded to epic proportions before popping in 2007, with results that most readers remember clearly.

The Fed then completely lost it, setting short-term interest rates at literally zero and buying trillions of dollars of bonds to push long-term rates down to record low levels. This lit a rocket under asset prices, enriching the banks and their wealthy clients while saddling the rest of society with debilitating student loan, car, house and credit card debt. Again – to observers outside the Keynesian bubble delusion – this was not sane behavior. But in the context of an overriding compulsion to save Wall Street at any cost, it was sold – and bought – as somehow heroic rather than pathological.

Which brings us to today, 9 years into the latest bubble-driven recovery with debts everywhere at record levels, stocks and bonds priced for perfection, and interest rates still at historically low levels. Now the Fed is making plans for the next, inevitable recession. And not surprisingly, given the past three decades’ trajectory, those plans are even crazier than their predecessors:

Fed’s Williams calls for global rethink of monetary policy

(Reuters) – Global central bankers should take this moment of “relative economic calm” to rethink their approach to monetary policy, San Francisco Fed President John Williams said Thursday, warning that to fight the next recession, as with the last, they would need to do more than just cut interest rates.

Other Fed officials, including Chicago Fed Bank President Charles Evans, have in recent days urged a strategy review at the Fed, but Williams’ call for a worldwide review is considerably more ambitious.

With many major economies facing slower growth and thus lower interest rates even when unemployment is low, central banks will need to find ways to stimulate their economies that work even when many other countries are also trying to boost their growth.

“We will all be better able to contain the next economic recession if we develop approaches that succeed even when many countries are simultaneously constrained by the lower bound,” Williams said at the opening of a two-day conference on Asian economic policies at the San Francisco Fed. “And that means taking into account the nature of monetary policy spillovers.”

Strategies that central banks should consider including not only the bond-buying and forward guidance used widely in the last recession, but also negative interest rates that was used in some non-U.S. countries, as well as untried tools including so-called price-level targeting or nominal-income targeting. Central banks may also want to consider setting a higher inflation target, he said.

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Fed should convince markets it would tolerate inflation at 2.5%, Evans says

(MarketWatch) – Inflation has been too low for too long and the U.S. central bank has to alter its communications with the markets to convince investors the central bank is willing to let it run hotter than the 2% target, said Charles Evans, the president of the Chicago Fed, on Wednesday. In a speech in London, Evans said the Fed must alter its statement to make clear that its inflation target of 2% is not a ceiling. “Our communications should be much clearer about our willingness to deliver on a symmetric inflation outcome, acknowledging a greater chance of inflation at 2.5% in the future than what has been communicated in the past,” Evans said. Many economists and Fed officials think the low inflation seen this year is due to transitory factors. But Evans said “it gets harder and harder for me to feel comfortable” with the transitory explanation “with each low monthly reading.”

Some Thoughts

Think of the Fed – and the other major central banks – as a person who does a stupid but not necessarily criminal or pathological thing, and then starts committing ever-more serious crimes to cover up the original act. Each new atrocity is justifiable in the moment, since it keeps the perpetrator out of jail, but the later stages of the process seem criminally-insane to rational bystanders. Here’s some of what the Fed is planning and why it’s bad:

  • Negative interest rates are a distortion of markets that imply a fundamental misunderstanding of the purpose of markets, which is to efficiently allocate capital. When savings generates a negative return, as they do when bonds and bank accounts charge rather than pay interest, capital shrinks rather than grows. There is no possibility of “efficient allocation” when returns are negative.
  • Evans said the Fed must alter its statement to make clear that its inflation target of 2% is not a ceiling.” One of the hallmarks of obsession is a fixation on one thing to the exclusion of everything else. The Fed official quoted here is living in a world where real estate, bond and stock prices are at record levels, and consumer, corporate and government debt is soaring. And where a painting, wristwatch, and piece of paper with a single line of text recently sold, respectively, for $450 million, $17 million, and $1.8 million. And he sees unacceptably-low inflation.
  • Strategies that central banks should consider including not only the bond-buying and forward guidance used widely in the last recession, but also negative interest rates that was used in some non-U.S. countries, as well as untried tools including so-called price-level targeting or nominal-income targeting, he said.” Price-level targeting, since it focuses on the wrong prices, will simply blow up even bigger asset bubbles (thus illustrating another definition of insanity: repeating the same activity while expecting a different outcome).And nominal-income targeting? Here again, it’s easy to raise the average income by enriching the 1%, but using negative interest rates (which lower the incomes of small savers) and asset purchases (which bypass small savers who lack big stock and bond portfolios) to help society as a whole is worse than pointless. Which is another sign that the Fed literally doesn’t see the biggest part of the economy — financial asset prices — because those prices aren’t accounted for in its “aggregate demand” economic models.

Anyhow, the list of delusions and other pathologies could go on for a while. Suffice it to say that when the next recession hits – which, based on the action in junk bonds, subprime mortgages and the yield curve, may be fairly soon – some truly crazy ideas will be dumped on a still (amazingly) unsuspecting public.

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