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Crafty_Dog
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« Reply #900 on: February 22, 2016, 04:51:39 PM »

Velocity May Be Picking Up To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 2/22/2016

One of the reasons the current economic expansion has been a Plow Horse rather than a Race Horse is the lack of monetary velocity, which is how fast money circulates through the economy.

Velocity has been slow for a lot of reasons, including banks rebuilding capital after 2008-09, Dodd-Frank, and the Federal Reserve paying interest on bank reserves, a new policy it started in 2008. Another key reason is that banks have operated as if they assume the huge expansion in the Fed’s balance sheet will eventually be retracted, so why lend it out?

But it’s starting to look like velocity is reviving. In the past year, “core” consumer prices, which exclude food and energy, are up 2.2%, versus a 1.6% gain in the twelve months ending January 2015. Yes, the overall CPI is up only 1.3% in the past year, but these prices were actually down 0.2% in the year that ended January 2015. Moreover, oil prices are not going to fall forever. Once they stop falling – and there are signs that we are at or near the bottom already – inflation for overall consumer prices will accelerate as well.

Meanwhile, core producer prices were up 0.4% in January, the largest increase for any month in more than a year. Put this together with consumer price data and continued Plow Horse real economic growth, and it’s consistent with an acceleration in nominal GDP growth (real GDP growth plus inflation). That’s significant because nominal GDP growth has been oddly tame recently, up only 3.4% annualized in the past two years, versus 3.6% in 2012-13 and 4.1% in 2010-11.

Yes, we’ve had temporary accelerations of inflation before, earlier in the expansion, but what makes it different this time, what signals that it’s more likely to persist is the acceleration in wages as well. In the past six months average hourly earnings are up at a 2.9% annual rate, the fastest pace for any six-month period since the expansion started.

In addition, the growth in the M2 measure of money – mostly currency, deposits in checking accounts, and savings accounts – increased at an 8.2% annual rate in the past three months, the fastest pace since the end of QE3 back in 2014.

Although velocity has shown signs before of accelerating, we think this time it’s for real. It looks increasingly likely that the Fed is going to significantly delay rate hikes. It might not raise rates again until June or maybe even December again, just like last year. In turn, that sends banks a signal that the Fed isn’t going to reduce the size of its balance sheet anytime soon. Instead, it’s more likely the Fed will just let time do their work for them, keeping the balance sheet enlarged and letting natural growth in the economy very gradually reduce the balance sheet relative to GDP.

All of this is yet another reason why the recent selloff in US equities is likely to be temporary and there’s likely to be a major correction in Treasury bond prices ahead, with yields rebounding higher for the rest of the year.

In addition, as central banks in Europe and Japan continue to experiment with negative interest rates, the US dollar may weaken as negative rates abroad lead to financial compression among foreign financial institutions and increase the appetite of Europeans and the Japanese to hold raw cash balances rather than put their money in banks.
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G M
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« Reply #901 on: February 26, 2016, 10:13:42 AM »

http://www.cnbc.com/2016/02/26/deutsche-bank-its-time-to-buy-gold.html

Don't forget the other metals.
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Crafty_Dog
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« Reply #902 on: February 29, 2016, 02:48:13 PM »

Currency Mayhem To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 2/29/2016

With both the European Central Bank (ECB) and the Bank of Japan moving to a Negative Interest Rate Policy (NIRP), conventional wisdom says the US dollar will continue to strengthen. After all, the Fed is tightening while everyone else seems to be working overtime to ease policy.  But this thinking may have it exactly backward. The experimental monetary policies of quantitative easing (QE), zero interest rates (ZIRP), and NIRP have a spotty record at best. There is little evidence they have worked. After all Japan has been doing QE since 2001 – so where are the fruits?

Moreover, it’s very possible that negative interest rates will increase cash hoarding and thereby slow money growth. And if money growth slows in Europe
and Japan, while it accelerates in the US, then the dollar may actually weaken, or at least not strengthen in any significant way.

As a result, hedging European or Japanese investments for currency risk could be a costly mistake. In addition, it would be another mistake to underestimate the earnings potential of multinational US corporations due to potential currency losses.

So, how can this make sense? First, the Federal Reserve is in the midst of an incredible monetary experiment that has never been done before.

From 1913 to 2008, when the Fed wanted to raise interest rates it reduced the amount of outstanding reserves by selling bonds to banks. But this time it really is different; banks have more reserves than they know what to do with. So instead, the Fed is offering to pay a slightly higher interest rate on current bank reserves. But it’s a weak tool at best. Though the Fed has withdrawn some reserves from the banking system, there are still over $2 trillion in excess reserves system-wide.

In other words, the banking system is still awash in a massive amount of liquidity that can be turned into loans and an increased money supply. And as the Fed has lifted rates, both the M2 money supply (all deposits at all banks) and bank loans and leases have accelerated. In the three months ending in February, M2 has grown at a 6.9% annual rate versus just 5.6% in the past 12 months, while overall loans and leases have accelerated to a 9.8% growth rate in the past three months.

At the same time, there is a shortage of safes in Japan as consumers try to get cash out of banks where they may be charged interest, instead of receiving interest, in the future. At the margin this is happening in Europe as well. When people hold more cash, banks have fewer deposits, so the idea that these negative interest rates will force banks to lend and expand the money supply is suspect.

The big mistake investors are making is believing that central banks can actually manage economic growth. It’s not true and, in fact, the conventional wisdom is causing investors to make big mistakes with what we can only call very simplistic monetary analysis. Don’t always take things at face value.
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DougMacG
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« Reply #903 on: March 05, 2016, 10:00:53 AM »

Speaking of business textbooks, where did these policies come from?  Zero Interest Rate Policy was an accusation I have been making against the Fed since interest rates were artificially set below 3%, 2% and 1%.  I didn't know they could actually go to zero except in a fraudulent come-on. Now it's a widely recognized acronym.  In fact, the danger of having interest rates so low, like 2%, was that the Fed runs out of tools, is unable to lower them further.  My bad!  Now think of negative interest rates across an entire continent or the globe.  We have effectively canceled the concept of savings (Crafty has been on this as well), we have repealed the time value of money and the removed most powerful force in the world, the power of compound interest.  My grandfather sat me down when I started investing and showed me how 7% starts turning into real gains if you let it work over multiple years.  But like the living constitution judges of today knowing more than the Founding Fathers, the people 'managing' our money supply think they know more than everyone that came before them.  FYI to these new know-it-alls, there isn't a monetary trick that makes up for running your fiscal policy at accumulated deficits of at least 24 trillion before it would even be possible to turn it around if you started today.

Wesbury is right on this, just a little too low key about the dangers.  This is insanity and bad policies have bad consequences.  Why would we expect anything else?

Japan is running out of safes and the US is trying to ban currency.  What could possibly go wrong?

...The experimental monetary policies of quantitative easing (QE), zero interest rates (ZIRP), and NIRP have a spotty record at best. There is little evidence they have worked. After all Japan has been doing QE since 2001 – so where are the fruits?
...
So, how can this make sense? First, the Federal Reserve is in the midst of an incredible monetary experiment that has never been done before.

From 1913 to 2008, when the Fed wanted to raise interest rates it reduced the amount of outstanding reserves by selling bonds to banks. But this time it really is different; banks have more reserves than they know what to do with. So instead, the Fed is offering to pay a slightly higher interest rate on current bank reserves. But it’s a weak tool at best. Though the Fed has withdrawn some reserves from the banking system, there are still over $2 trillion in excess reserves system-wide.

In other words, the banking system is still awash in a massive amount of liquidity that can be turned into loans and an increased money supply. And as the Fed has lifted rates, both the M2 money supply (all deposits at all banks) and bank loans and leases have accelerated. In the three months ending in February, M2 has grown at a 6.9% annual rate versus just 5.6% in the past 12 months, while overall loans and leases have accelerated to a 9.8% growth rate in the past three months.

At the same time, there is a shortage of safes in Japan as consumers try to get cash out of banks where they may be charged interest, instead of receiving interest, in the future. At the margin this is happening in Europe as well. When people hold more cash, banks have fewer deposits, so the idea that these negative interest rates will force banks to lend and expand the money supply is suspect.

The big mistake investors are making is believing that central banks can actually manage economic growth. It’s not true and, in fact, the conventional wisdom is causing investors to make big mistakes with what we can only call very simplistic monetary analysis. Don’t always take things at face value.


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G M
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« Reply #904 on: March 05, 2016, 06:42:28 PM »

ZIRP is a giant flashing DANGER sign that the system has been distorted beyond reason. Act accordingly.
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ccp
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« Reply #905 on: March 14, 2016, 12:59:59 PM »

I am not sure if this the right thread.  Could go under fascism threat or political rants:

BONGINO: THE PLOT TO STEAL THE ECONOMY

By: Dan Bongino | March 14, 2016

Janet Yellen Jacquelyn Martin | AP Photo

I’ve written a couple of books and I’ve even co-written a movie script, but nothing I have ever written tells a story as diabolical as the one I’m going to tell you here. Let’s pretend you are a socialist in training and you are looking to take over the economy, using government force and bureaucratic expansion as your weapons of choice. How would you do it if you wanted to conceal your intentions? Well, it’s already being done and here’s how.

They don’t call Japan’s decade of economic troubles the “lost decade” because it was a time marked by booming economic growth.

The first step in the economic takeover is to use taxpayer money, or taxpayer subsidies, to reward your crony friends through purchasing interests in PRIVATELY held businesses. How is this happening you ask? The European Central Bank recently followed Japan’s poor example and decided to expand its asset portfolio by purchasing corporate bonds. Take a moment to think about this. The European Central Bank is using its Euro-Zone monopoly power over money to buy stakes in non-government assets? How do they decide which businesses get to take part in this central bank largesse?

The opportunities for corruption and influence peddling here are myriad as government interference in the private economy typically ends poorly. They don’t call Japan’s decade of economic troubles the “lost decade” because it was a time marked by booming economic growth. Whenever government tries to pick economic winners and losers, it usually picks the losers, while the political winners continue to get re-elected because their campaign coffers are filled with business lobbyists eager to get their snouts in the tax-payer-funded trough.

The second step, after you have used taxpayer money to buy off private businesses, is to ensure that you can tax the private economy at confiscatory rates and use the taxpayers’ money to buy off more businesses and more votes. Also, you must ensure that there are no exit ramps to avoid this taxation. How is this happening you ask? It’s happening through two mechanisms. The first mechanism is the move towards negative interest rates. Negative interest rates are predicated on the idea that charging consumers for idle money in their bank accounts will “stimulate” the economy by incentivizing them to spend it. This farce of a policy is really a scam to ensure that big-government types and wanna-be socialists run up big government debts through their nanny-state spending plans and that the debts they run up are devalued over time. High interest rates make the money you hold worth more. But it also makes debts more difficult to pay off as the value of that debt goes up and up. This is one of the core reasons that big-government types love inflation and low interest rates. The bills can be delayed as they debase the currency and pile on the debt, which is then slowly inflated away.

Once you’ve used taxpayer money to buy off companies, and run up enormous government debts with devalued currency, you have to make sure your citizens can’t escape with their money before the pending collapse. How is this happening you ask? It’s happening through a global “war on cash.” Through capital controls, and the influence of misguided economists, governments such as Sweden have been actively promoting electronic payments in lieu of cash. When cash disappears the only way to acquire goods is through electronic transactions which, conveniently for the government, can all be monitored and taxed. And when the negative interest rates grow to punishing levels, and you begin to lose larger and larger amounts of money every day your money sits in your electronic bank account, there is nowhere for you to go because cash will be illegal to have or difficult to use.

What a deal huh? Take our money and give it to your crony business friends. Then spend all of our tax money on your big-government agenda. Then run up huge debts which will never be paid off because you are debasing the currency. And, finally, make sure the angry citizens cannot escape by pulling their money out of the failing system and moving to cash. Genius… if you’re a diabolical big-government, wanna-be socialist intent on destroying the lives and futures on hundreds of millions. Someone should write a movie script.

(Dan Bongino has also endorsed Ted Cruz for president.)
- See more at: https://www.conservativereview.com/commentary/2016/03/plot-to-steal-the-economy#sthash.gnsZUjaE.dpuf
« Last Edit: March 14, 2016, 04:52:25 PM by Crafty_Dog » Logged
Crafty_Dog
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« Reply #906 on: March 14, 2016, 04:53:38 PM »

" But it also makes debts more difficult to pay off as the value of that debt goes up and up. This is one of the core reasons that big-government types love inflation and low interest rates. The bills can be delayed as they debase the currency and pile on the debt, which is then slowly inflated away."

 huh huh huh
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objectivist1
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« Reply #907 on: March 14, 2016, 06:15:58 PM »

I think what the author is trying to say is that the REAL VALUE of a currency-denominated debt is reduced by inflation.  Thus - if you have a debt of say, $1,000 - and let's say the inflation rate over 10 years (when the debt is due) is cumulatively 100%, then you would be paying back that $1,000 debt with dollars that have an actual value of only $500.  Thus, the lower you keep interest rates (even to zero) and the higher the inflation rate - the faster the actual value of the debt decreases.
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"You have enemies?  Good.  That means that you have stood up for something, sometime in your life." - Winston Churchill.
Crafty_Dog
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« Reply #908 on: March 15, 2016, 08:02:46 PM »

y Anne Stevenson-Yang and
Kevin Dougherty
March 14, 2016 12:17 p.m. ET
12 COMMENTS

After initial declines in the Chinese market to start the year, the past few weeks have seen signs of what some would call a rebound. Lending in China rose by 67% in January, iron-ore prices initially rallied by 64% and housing sales in the top four markets surged. The yuan gained back half of the nearly 7% it had lost against the dollar since November, sending hedge funds that had shorted on the currency running for cover. And yet there remains no sign of life in the underlying Chinese economy.

More than $800 billion in credit that had been pushed into the economy in January failed to boost production or increase sales. Producer prices remained negative, dropping 5.1% in January-February, while the manufacturing PMI fell to 48 in February from 48.4 in January, indicating worsening contraction. That’s because the rally was the result of a coordinated government effort to restore confidence in the China Dream of limitless growth at home and glory abroad. The market, apparently, isn’t so easily convinced.

From hiding capital outflows to propping up real-estate values, manipulating futures markets and squeezing short-sellers of the yuan, Chinese authorities have been trying to bring back the old, quasisuperstitious belief in Beijing’s omnipotence. But the political desperation behind these efforts betrays a different story: that an impending currency crisis is a signal of the dream’s undoing.

That’s why in China getting money out of the country is now the major preoccupation of both families and corporations. Risk-averse individuals are trading out of the wealth-management products they used to buy for 10% yields and moving their money to safety in the U.S., Australia, Canada and Europe. Chinese companies are making extravagant bids for overseas assets such as General Electric ’s appliance division, the equipment maker Terex Corp. , the near-dead Norwegian web browser Opera, the Swiss pesticides group Syngenta, technology distributor Ingram Micro and even the Chicago Stock Exchange.

In the first six weeks of 2016, Chinese firms committed to spending $82 billion on such acquisitions. Last year saw nearly $1 trillion in capital outflows, including a decline of $512.66 billion in the foreign reserves. Although no one is sure how much of China’s reserves are liquid and available, it’s safe to say that, at this rate, China can’t afford capital flight for more than another year.

One way to stem the crisis would be through depreciation. That would be sound policy for the people of China, but it’s a dreaded last resort for a leadership that wants, more than jobs for its people, to bolster buying power and save political face overseas. Yet history shows that holding the line on the currency is a losing strategy. Tightened liquidity causes more pain to the economy and simply delays the inevitable.

National leaders, when faced with a disorderly adjustment, will inevitably resist markets, promise major structural changes (which are then slow to materialize), inject liquidity into financial markets and insist that everything is under control. But these measures rarely work and in fact have never worked when imbalances are as severe as they are in China today.

In other countries, currency crises usually followed a sudden and irreversible loss of confidence. The Asian Tigers were booming and then fell apart rapidly. Same in Russia. China faces the added difficulty of having little institutional memory and few tools to manage the economy in a time of capital scarcity. And there is no sign that capital-outflow pressure will ease.

And so a painful adjustment will be unavoidable: Property values will decline by an estimated 50% from the current reported average of $142 per square foot in tier-two cities, roughly equivalent to the national average in the U.S., where incomes are much higher. (Current price-to-income ratios in China are generally over 20, while the U.S. averages about three.) Excess industrial capacity will shut down. People will lose their jobs.

But Beijing still has a choice: Either let the yuan take some of the pressure of adjustment, or let all of it fall on the domestic market. Placed in such stark terms, a currency adjustment seems inevitable.

A likely depreciation of at least 15% against the U.S. dollar would take the renminbi back to where it was on the eve of the global financial crisis, before speculative capital inflows flooded into China and drove up the currency’s value. This would be a “reset event” globally. All forecasts for inflation/deflation, interest rates, currency crosses, growth and commodity prices would have to be ripped up and recalculated. It would likely lead to an emerging-markets crash. As a percentage of global gross domestic product, China today is nearly twice the size of Asia (excluding Japan) in 1997.

Commodities, emerging-market equities and multinationals with exposure to China have already started to realize significant losses. Soon major corrections will reach other assets boosted by the Chinese economy, such as property values in Hong Kong and Singapore. When this unfolds, U.S. government bonds may be the world’s only safe haven. The end of the China story is at hand.

Ms. Stevenson-Yang is co-founder of J Capital Research Ltd. Mr. Dougherty is chief investment officer of KDGF Asset Management.
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Crafty_Dog
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« Reply #909 on: March 15, 2016, 08:18:15 PM »

second post:

WTF?!?

Crime Scene: Who Stole $100 Million From Bangladesh’s Account at the New York Fed?
Breach sent $81 million to accounts in Philippines, $20 million to Sri Lanka
Bangladesh’s central-bank governor, Atiur Rahman, center, at a news conference Tuesday. He resigned after money was stolen from the country’s account at the New York Fed. ENLARGE
Bangladesh’s central-bank governor, Atiur Rahman, center, at a news conference Tuesday. He resigned after money was stolen from the country’s account at the New York Fed. Photo: A.M. Ahad/Associated Press
By Syed Zain Al-Mahmood
March 15, 2016 10:42 a.m. ET
147 COMMENTS

DHAKA, Bangladesh—Someone using official codes stole $100 million from Bangladesh’s account at the New York Fed over a recent weekend. Authorities in four countries are still piecing together what happened.

The breach funneled $81 million from the country’s account at the New York Federal Reserve to personal bank accounts in the Philippines. Another $20 million was directed to a bank in Sri Lanka.

In scenes that would be right at home in Hollywood, the unknown criminals sent 35 transfer requests through the Swift interbank messaging system, a Bangladesh Bank official and an official of the Ministry of Finance have said. Whoever made the requests had the necessary codes to authorize Swift transfers and put in the payment requests on a weekend, the officials said.


The incident has led to recriminations, with Bangladesh’s finance minister accusing the Fed of irregularities, and questions being raised about the quality of security in the South Asian country. In an early sign of fallout from the breach, Bangladesh’s central-bank governor, Atiur Rahman , resigned Tuesday.

Mr. Rahman had come under fire from senior ministers who said he didn’t tell the government about the theft fast enough. Although the theft took place Feb. 5, Bangladesh Bank, the central bank, didn’t make a public announcement until last week. The country’s finance minister, Abul Maal Abdul Muhith, said he learned of the heist from news reports.
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On Tuesday, Mr. Rahman, who had been the governor of Bangladesh Bank for nearly seven years, said he was taking moral responsibility for the loss of the money. Two deputy governors of Bangladesh Bank were relieved of their duties, Mr Muhith said. He didn’t clarify why they were removed. The officials couldn’t be reached for comment Tuesday.

The Fed declined to comment Tuesday. It has said it is working with Bangladesh to investigate the incident and said none of its systems were compromised.

Interviews with several officials at Bangladesh’s Finance Ministry and its central bank depict a well-planned international caper spanning at least four countries.

The breach began on a quiet Friday last month, when a series of payment instructions arrived at the New York Fed seeking the transfer of nearly $1 billion out of the Bangladeshi account.

The transfer requests, which the Fed says were fully authenticated with the correct bank codes, asked to move the money to private accounts in the Philippines and Sri Lanka and appeared to come from the Bangladeshi central bank’s servers in the capital, Dhaka.

But Friday is the weekend in Bangladesh and the central bank’s offices were closed. By the time officials at Bangladesh Bank returned to work, five requests moving about $100 million had gone through. Further transfers totaling roughly $850 million were blocked after the Fed raised a money-laundering alert, a spokesman for Bangladesh Bank said. The fact that the money was being wired to personal bank accounts in the Philippines rang alarm bells.

The $81 million that did leave the bank for the Philippines ended up in the account of a local businessman before making its way to at least two local casinos, the executive director of the country’s Anti-Money Laundering Council, a government task force, said at a hearing at the Philippine Senate on Tuesday.

Julia Bacay-Abad, executive director of the Anti-Money Laundering Council, said the money had apparently been used to buy gambling chips. The council’s investigation ended at the casino’s doors, however. Gambling facilities aren’t covered by the Philippines’ Anti-Money Laundering Law.

“Manila has returned only $68,000 of the money which was left in the bank accounts,” said a Bangladesh Bank official close to the investigation. “Whoever planned it had thought well ahead.”

The $20 million transferred to Sri Lanka went to the account of a newly formed nongovernmental organization, according to the officials in Dhaka. The Sri Lankan bank handling the account reported the unusual transaction to the country’s central bank under that country’s money-laundering laws, and authorities reversed the transfer.

Swift uses a multilayered process to authenticate the financial institutions that are sending and receiving millions of messages each day between one another. A spokeswoman said the messaging system’s core services hadn’t been affected, and said Swift was working with Bangladesh Bank “to resolve an internal operational issue at the central bank.”

Cybersecurity experts say the theft of money from the New York Fed shows the vulnerability of emerging economies like Bangladesh, where the rapid growth of the banking system has outpaced regulations and security systems.

Bangladesh foreign-currency reserves touched a record $28 billion in February. Nearly a third of those are held in liquid form in bank accounts at the Fed and the Bank of England, according to Bangladesh Bank officials.

—Cris Larano in Manila and Katy Burne in New York contributed to this article
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Crafty_Dog
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« Reply #910 on: March 16, 2016, 12:31:25 PM »

Grannis:

http://scottgrannis.blogspot.com/2016/03/inflation-is-alive-and-well.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+blogspot%2FtMBeq+%28Calafia+Beach+Pundit%29

====================================================================
The Consumer Price Index Declined 0.2% in February To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 3/16/2016

The Consumer Price Index (CPI) declined 0.2% in February, matching consensus expectations. The CPI is up 1.0% from a year ago.
“Cash” inflation (which excludes the government’s estimate of what homeowners would charge themselves for rent) declined 0.3% in February but is up 0.3% in the past year.

Energy prices declined 6.0% in February, while food prices increased 0.2%. The “core” CPI, which excludes food and energy, increased 0.3% in February, above the consensus expected 0.2% rise. Core prices are up 2.3% versus a year ago.
Real average hourly earnings – the cash earnings of all workers, adjusted for inflation – remained unchanged in February and are up 1.2% in the past year. Real weekly earnings are up 0.6% in the past year.

Implications: The Federal Reserve needs to pay close attention to today’s inflation report, which shows the ongoing split between energy prices and prices in the rest of the economy. While February’s headline reading for overall consumer prices posted the consensus expected decline of 0.2%, the details of the report show accelerating inflation. The cause of the decline in consumer prices in February was a 13% drop in gasoline prices, which fell to the lowest level since January 2009. Energy prices as a whole (gas plus everything else) didn’t fare much better, falling 6%. However, the “core’ CPI, which excludes food and energy, rose 0.3% in February. Core prices are up 2.3% versus a year ago, the largest gain since the last recession. In the past three months, core prices are up at a 3% annual rate. These data are a sign that monetary velocity is picking up (the speed that money circulates through the economy). It’s also why the Fed can be confident inflation is moving back toward it’s 2% target. As soon as energy prices stop falling, and that may have started in March, the headline CPI is going to move back toward the core CPI. The increase in the core CPI in February was led by housing rents and clothing. Owners’ equivalent rent, which makes up about ¼ of the CPI, rose 0.3% in February, is up 3.2% in the past year, and will be a key source of higher inflation in the year ahead. Don’t be taken by surprise by higher inflation in 2016-17. The Fed is still loose and is likely to stay that way for the foreseeable future. Although it’s unlikely, there is still a small chance the Fed hikes rates today. More likely, the next hike will come in June, with one or two more hikes in late 2016.
« Last Edit: March 16, 2016, 12:33:29 PM by Crafty_Dog » Logged
DougMacG
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« Reply #911 on: March 28, 2016, 11:14:11 AM »

Another 'Captain F'ing Obvious' moment for anyone reading the forum, now experts are telling us the Fed's wrongheaded policies of a decade ago (and now, still) are major contributors to the bubbles and crashes, then and coming...

http://economicsone.com/2016/02/22/a-firm-conclusion-about-the-role-of-fed-leading-up-to-the-crisis/
http://ftalphaville.ft.com/2016/02/08/2152624/the-bank-of-canada-admits-easy-money-can-inflate-debt-bubbles/
http://www.bankofcanada.ca/wp-content/uploads/2016/02/remarks-080216.pdf
http://www.stanford.edu/~johntayl/Onlinepaperscombinedbyyear/2007/Housing_and_Monetary_Policy.pdf
http://www.stanford.edu/~johntayl/2010_pdfs/Fed-Crisis-A-Reply-to-Ben-Berhttp://www.sppm.tsinghua.edu.cn/eWebEditor/UploadFile//20150602112635392.pdf
nanke-WSJ-Jan-10-2010.pdf
http://www.sppm.tsinghua.edu.cn/eWebEditor/UploadFile//20150602112635392.pdf
http://research.stlouisfed.org/publications/review/08/07/Jarocinski.pdf

Pretty much every economist on earth except Greenspan, Bernanke and Yellen agree on the multi-trillion dollar damage actual Fed policies have dealt on our economy.  And it's still happening. (cf. ZIRP, NIRP)

« Last Edit: March 28, 2016, 01:30:48 PM by Crafty_Dog » Logged
DougMacG
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« Reply #912 on: April 13, 2016, 11:44:57 AM »

After 7 years we still haven't needed a positive thread for this administration; it all fits nicely into 'cognitive dissonance of his glibness'.  I was quite hard on Jack Lew earlier for his political lying and corruption, all part of the job I'm sure. http://dogbrothers.com/phpBB2/index.php?topic=2177.msg70291;topicseen#msg70291  The IRS targeting scandal non-follow up also falls under his jurisdiction.

Here is a current interview with Lew over a range of topics relating to his job as Treas Sec.  Some of what he says makes sense.  Still it is amazing that someone could be doing their job as Treasury Secretary and not be screaming warnings from the rooftops about how damaging our deficits and to the future of this country.

http://www.theatlantic.com/international/archive/2016/04/jacob-lew-alexander-hamilton-clemons/477924/

Lew: The president and I tend to be very like-minded on the realist approach. If you look at something like Ukraine, in putting together support for [the government there following the country’s 2014 revolution]. The anchor was an IMF program [of $17 billion in urgent support]. It also needed to work with the Europeans [to] put in a significant amount, because [Europe] was right there. But then we went around the world, and we got countries that don’t have immediate exposure to Ukraine or Russia, [including] Canada and Japan. We put together a global effort so that with our loan guarantees, the IMF package, European support and contributions from other countries around the world, we actually helped Ukraine.

I think it gets harder and harder because everyone is feeling fiscal constraints. But I think we have a very powerful ability to cross that moral threshold, where countries know they should [contribute], and then it becomes a budget question of how much you can get them to do. Could we have put together a $25 billion package, or $20 billion [for Ukraine]? We couldn’t. But you put it all together, and it’s the world telling Russia that Ukraine will have a long enough runway to get back on its feet. That’s geopolitically of great significance.

   - A good policy wonk with no principles, vision or moral character.  My guess is that he will be the next Chairman of the Federal Reserve.


On China:
Lew: I think that we have to recognize there are going to be areas where we have overlapping interests; there are areas where [we’re] going to have differences. We’re going to have to make progress in the space where we agree, but [we also have to] put down really hard markers, whether it’s over [the] South China Sea or cyber theft—we can’t just gloss over those issues.

One of the things I have found in my engagements with the Chinese is that they respect the directness of that. It’s not on its face offensive to say, “You do these things that we find unacceptable.” We shouldn’t kid ourselves that just by saying it they will change. We are pulling them along as a global community to a better place. [China’s current economic transition] is one of the hardest economic transitions that any country has ever undertaken; [it’s] one of the biggest economies in the history of the world shifting from a centrally controlled, non-market, top-down structure to something that is more market-driven.

The question is not whether they intellectually understand the importance of that transition. They all understand what they need to do. Are they prepared to live with the bumps that come with making that transition? They are not small bumps. You dislocate millions of people from their manufacturing jobs. You either reposition them in different jobs in different places or provide some support because they are no longer working. Those are huge things to do.

They say the right things, but the proof of pudding is in the eating, and it’s hard. I don’t say that in a condescending way at all. If you asked me to relocate 1.5 million American workers, that would be very hard. But they have no choice because of where their economy was, and where it has to go.

They value the relationship with us. You know this whole communication thing, it’s not natural to them. Being open and transparent is new to them. They don’t intuitively know when they need to communicate. When I get on the phone with some of my counterparts and say, “You can’t surprise the world by doing something like this,” they try actually to do better going forward. But you can see from the way they have moved in the last few months that the learning curve is steep.
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G M
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« Reply #913 on: June 01, 2016, 03:07:20 PM »



http://bmgbullionbars.com/wp-content/uploads/2015.06.24-if-government-were-a-person-1024x694.jpg
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objectivist1
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« Reply #914 on: June 24, 2016, 01:48:28 PM »

Brexit Vote Passes! Here's How Alt-Market Called It When No One Else Did

Friday, 24 June 2016 00:41 Brandon Smith

Yes, in case you fell asleep before the votes were tallied, the UK referendum has passed and global markets are currently in a freefall we have not seen since 2008.  In this case, I'm going to have to trumpet my successful call here.  For all the general flak I received in emails for my predictions of a Brexit passage including in my article 'Brexit: Global Trigger Event, Fake Out Or Something Else' which was published during the height of the polling disinformation frenzy, I think it is important to explain how I was able to discern how the vote was likely to turn out when no one else did.

Also, if there were other analysts that did predict a Brexit win and I am overlooking them, please list their names and where they made those predictions in the comments below so that we can give them their due credit.

Here's why the vast majority of analysts were caught with their pants down on the UK referendum:

1) They assumed that the Brexit will hurt globalists - In the article linked above, I outlined why the Brexit actually aids international financiers and central banks by creating a scapegoat for a market crash that was ALREADY going to happen.  Rather than re-explaining my position, here is a large portion of quotations from that article:

I believe the Brexit vote may be allowed to succeed, here’s why…

1) Elites including George Soros have suddenly decided to dive into the market to place bets on the negative side. Dumping large portions of their stock holdings, shorting equities and buying up gold and gold mining shares. Soros has been preparing his portfolio for a successful Brexit vote while at the same time publicly warning of the supposed dire consequences if the referendum passes.  The last time Soros put this much capital into the markets was in 2007, just before the crash of 2008.

2) The IMF and the BIS have been warning since late 2015 (for six to eight months) that a global economic downturn is on the way in 2016. We saw considerable volatility at the beginning of this year, and markets are due for another shock. The last time the BIS and IMF were so adamant about an impending crash was in late 2007, just before the 2008 market plunge.

3) While the Federal Reserve has not yet implemented a second rate hike (I still believe they could use a rate hike this year to stab markets in the back if necessary), Janet Yellen pulled a maneuver which was almost as upsetting to investors. After the Fed policy meeting last week, markets were moderately exuberant and stocks were rising, then, Yellen opened her mouth and blamed the Brexit for the rate hike delay…

Here is what the Fed has done: By delaying the second hike for another month, and then blaming the Brexit vote as a primary reason, they have created a bit of a paradox. If the Brexit vote passes, the Fed is asserting that they may not hike rates for a while, giving market investors the impression that the global economic recovery is not all that it is cracked up to be. If the Brexit vote fails, then the Fed MUST hike rates in July, otherwise, they lose all credibility. I believe Yellen’s claim that the Brexit vote was the cause of the hike delay was highly deliberate. It has triggered what may become a growing firestorm in equities and commodities.

From the point of view of investors, if the Brexit passes, then all hell breaks loose. If the Brexit fails, then the Fed will hike rates and once again, all hell breaks loose. Or, the Fed refuses to hike rates even though its number one scapegoat is out of the picture, it loses all credibility, and all hell breaks loose.

It’s a lose/lose/lose scenario for the investment world, which is probably why global markets plunged after Yellen’s remarks. Investors have been relying on the predictability of central bank intervention for so long that now when ANY uncertainty arises, they run for the hedges.

The Fed decision to blame the Brexit for their rate hike delay could indicate foreknowledge of a successful Brexit vote.

4) The recent murder of British lawmaker Jo Cox is perhaps the weirdest piece in the puzzle of the Brexit. For one thing, it makes no sense for a pro-Brexit nationalist (Thomas Mair) to attack and kill a pro-EU lawmaker when the polls for the “Leave” group were clearly ahead. One could simply argue that the guy was nuts, but I’m rather suspicious of “lone gunman,” and his insanity has yet to be proven.  I see no reason for this man, insane or not, to be angry enough to kill while the Brexit side was winning in all the polls.

If someone was using him as a weapon only to discredit the Brexit vote or sway the public towards staying in the EU, you would think that they would have initiated the murder closer to the day of the referendum when it would have the most effect. The information flooded public has days to digest new data and forget Jo Cox.

My theory? Thomas Mair has handlers or he is just a mentally disturbed patsy, and his purpose is indeed to paint the Brexit movement as “angry” or crazy. But this does not necessarily mean the intent behind the assassination of Jo Cox was to break the back of the Brexit movement. Rather, the goal may only be to perpetuate a longer term narrative that conservatives in general are a destructive element of society. We kill, we’re racists, we have an archaic mindset that prevents “progress,” we divide supranational unions, we even destroy global economies. We’re storybook monsters.

Even the cultural Marxists at the Southern Poverty Law Center somehow produced documents allegedly linking Mair (a veritable unknown) to Neo-Nazi groups in 1999. Wherever the SPLC is involved, the official story is always skewed.

The murder of Jo Cox has had a minimal effect on Brexit polling numbers.  In the end, the elites may find Thomas Mair more useful as a mascot for the Brexit AFTER the vote, rather than before the vote.

So now the Brexit movement, which is conservative in spirit, is labeled a “divisive” and “hateful group”, and if the referendum is triumphant, they will also be called economic saboteurs.

I thoroughly agree that the internationalists do not usually allow economic developments of a global nature to occur if those events are damaging to their base of power.  The problem is, Brexit is not damaging to their base of power in the long run.  In fact, the elites are aided by the Brexit because now they have British pro-sovereigns and the principle of sovereignty itself to blame for a market crash that they have actually been engineering for years.

2) They Believed The Polling Numbers - I take polling numbers into account at times but they are ultimately meaningless when you are dealing with global economic events.  As I point out above, such events are thoroughly played by internationalists.  What people should have been looking at instead of skewed polling numbers was the behavior of elites prior to the vote.  George Soros' latest market bets were clearly on a crash (I'm sure he just raked in a handsome profit), and central bankers from around the world congregated at the Bank for International Settlements in preparation for the vote.  Janet Yellen blaming the Brexit for the Fed's refusal to raise rates in June should have been a red flag for everyone.  When in doubt, always look at what the elites are doing with policy and their own money.

3)  They Have Grown Cynical - After eight years of constant market manipulation, the Liberty Movement in particular has grown rather cynical about whether or not the fundamentals even matter anymore.  I'm here to tell you, they do matter.  However, stocks today are not based on fundamentals, they are based on dubious investor psychology and algo-trading computers.  When investor psychology is broken, the markets are suddenly reminded of the terrible fundamentals of our economic system and stocks begin to crash.  Eventually, fundamentals will win over false financial optimism.  The international banks are well aware of this, and are merely allowing circumstances by which they can crash the markets THEIR WAY instead of allowing the markets to crash naturally.  Too many analysts overlooked the usefulness of Brexit to the elites because of their crippling cynicism.

4) They Missed The Bigger Picture - If all an analyst does is track equities and sometimes commodities, they are never going to grasp what is happening in the economy.  Our financial system is not based entirely on numbers and graphs; it is a sociopolitical apparatus.  Political and social developments can indeed signal what might happen in stocks and on mainstreet.  The relations are there, but they are often indirect.  In 2016, EVERYTHING is snowballing with tension.  It was only a matter of time before something snapped.  The timing of the Brexit amidst these tensions led me to believe it had a high probability of being a trigger for the next leg down.

So, the big question now is what happens as the circus continues?  I will be writing a comprehensive article on what is likely to occur over the next few months in markets and everywhere else in response to the Brexit event.  Look for that article to be published early next week.  I do believe that central banks around the world are probably going to take action at some point in the near term to mitigate the market collapse and slow it down slightly.  As I have always said, this is a CONTROLLED DEMOLITION of the global economy; the elites want to steam valve the system down and are probably not going to allow a complete freefall.

You will most likely see a mainstream media campaign to marginalize the importance of the Brexit.  They will claim that the referendum is not necessarily binding yet. That it will take years to be instituted.  Frankly, this is not relevant.  Again, the markets are based on psychology first, and the damage has already been done.  Watch for further market disruptions to pile on before the U.S. elections, including other EU member states suggesting their own referendums.

Stay tuned to Alt-Market for further analysis...

 

Regards,

Brandon Smith, Founder of Alt-Market.com
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"You have enemies?  Good.  That means that you have stood up for something, sometime in your life." - Winston Churchill.
DougMacG
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« Reply #915 on: June 28, 2016, 10:02:38 AM »

I watched a Janet Yellen video called 'an hour of your life you will never get back' for you in case you don't want to see it:
http://gregmankiw.blogspot.com/2016/06/yellen-at-radcliffe.html
http://news.harvard.edu/gazette/story/2016/05/janet-yellen-honored-by-radcliffe-ponders-economy/

Janet Yellen is the most powerful woman in the world.  Decisions she makes affect your life.  If you include the long introductions and the advice to younger people, hers is an inspiring story of how she got to where she is and loves her field and her work.  She believes government, in this case The Fed, can alleviate the pain caused by the ups and downs of the private sector.  Something is upside down there, but let's run with it for a moment.

If you take the other side of it as I do, it is a bit creepy how this inbred group of elites has so much control over our lives.  The questioner is an economist I like, Greg Mankiw, Chair of the Economics Department at Harvard.  In the audience are Ben Bernanke, Loretta Lynch and others, a powerful group.  It is amazing how many of the Fed people, Wall Street people, Supreme Court Justices, Presidents, all went to the same schools.  Yellen went to both Harvard and Yale.  So did George Bush.  Bernanke went to Harvard.  Chief Justice John Roberts has two degrees from Harvard, so does Merrick Garland, 3 current justices went to Yale, Crafty went to Columbia, Obama Harvard, Hillary Yale, Trump Wharton and George Will Princeton.  Dorothy from Kansas was the last person of power to come from the heartland.  

Bernanke wrote a book on the Great Recession (he helped cause) and Yellen praised him for his work on that.  Showing up for the speech helps to keep the group in mutual back patting mode.  I was patiently listening for the negatives because I believe this economy is horribly under-performing and that the Fed is enabling the fiscal insanity of the other two branches. (Whoops, the Fed is not the third branch of government even thought the judiciary is now just a rubber stamp of elected liberalism.)

Zero interest rates are bad for the economy.  No one (but our Crafty) ever seems to say that.  We have a zero savings rate because of it; that didn't come up in the talk.  Why are interest rates still at roughly zero?  Because the economy is still too weak and too fragile to handle anything near a normal cost of money - in their own opinion - and the Fed has access and control of the most wide ranging and detailed economic information anywhere on the planet.  Why is the economy too weak and too fragile to handle real or normal, balanced, market interest rates?  Bad policies that are not being addressed by anything in her talk.  (See below.)

Of the financial collapse, Yellen says, "we didn't see it coming".  No they didn't.  She was on the forefront of warning about the housing bubble.  "We saw trees".  But they didn't see the forest by their own admission.  (So we put her in charge.)  She is quite humble but eager to brag about her predecessor and the team (she was head of the San Francisco Fed, 12th district).  The team responded fast and creatively and courageously and so on.  There should be a movie about it, starring some handsome young actor as Ben Bernanke.)  Not a word about how the Fed helped cause it!

So many great things are going on in our limping economy, she hardly had time to talk about the bad things.  We grew 14 million jobs since the bottom (while the population increased by more than that).  Maybe I have too much math and physics background, but waves are measured peak to peak or trough to trough, but those types of measure make this 'recovery' look like 8 wasted years we will never get back.  Unemployment (as measured dishonestly) dropped from 10% to 5%, now considered full employment [by others].  No mention of the weakness in that until pressed.

On the bad side, the number of people working part time who would like to be working full time is "unusually high", in the 8th year of the 'recovery'.

Not much improvement in wages (understatement of the decade), which is "suggestive of slack in the labor market", contradicting the unemployment improvement claim above.

Growth in "output" (GDP) is "remarkably slow".  

Productivity growth is VERY slow, 1/2% per year, "miserably slow", "a serious and negative development".
(I would like to come back to that since she didn't.)

Inflation is below the 2% target (the target is a crime in itself) due to the plunge in oil prices (nothing to do with inflation) and the appreciation of the dollar (all to do with failure in the world around us).

She sees currently weak growth picking up (greener grass just over that fence).  They intend to increase the "overnight lending rate" "gradually and cautiously" over the next few months (assuming growth picks up and it won't), and up from near zero to 3-3.25% within 5-7 years (assuming constant, uninterrupted growth, which also won't possibly happen).

She opposes negative interest rate policy for the "negative repercussions" (she is right on that) and agrees that zero interest rate policy limits the scope of policies the Fed has to address new problems and weaknesses that arise.  (Right again even though that is what they are doing.)  The Fed invented other tools in the face of this, "longer term asset purchases" that people like Yellen, Grannis and Wesbury don't like to call printing money (what did they purchase them with, thin air?).

As a true liberal leftist, she also believes in "greater latitude in fiscal policy" as a tool to address future downturns and weakness, as if public investment had the affect of private investment and as if $19 trillion in debt isn't already causing a burden and limiting the scope of future policy decisions.
--------------------------------
My own comments continued:

What did not come up at all are the underlying causes of the current malaise, over-taxation and over-regulation.

40% of people in their 20s with a college degree do not work in a job requiring a college degree.  100 million adults don't work at all.  Disability and food stamp recipient needs have skyrocketed DURING THIS 'RECOVERY' (not a recovery).  Wage growth is zero; productivity growth is zero; WHY?

Wages are tied to productivity growth and the demand for labor which is tied really to entrepreneurial and small business activities which are constrained (or crushed) by excessive taxes and regulations.

Productivity growth is tied to capital investment.  Think of digging a hole or a ditch with a broken shovel, a clean sharp shovel with a longer handle, a bobcat or a caterpillar.  Productivity goes up with better tools that cost money, in some cases lots of money, which means there has to be a good long term outlook, favorable economic conditions and a good, long term, AFTER TAX return realistically expected on that investment.  And no big threat that it will soon be closed or confiscated by the government.  This investment is not happening, Janet Yellen is telling us, though she is either too polite of too ignorant to criticize the administration and the congress for strangling our formerly vibrant private sector.

Productivity growth alone doesn't create higher wages, we need increased output growth too and some control over the supply of new cheap labor coming in.  Exactly the opposite of our current economic policies that stifle and punish capital investment, leave the borders open and offer programs for able people to not work in lieu of real job creation.  If you are the most powerful woman in the world and Chair of the U.S. Federal Reserve, get up on your bully pulpit and shout it!  Instead Janet Yellen is mostly silent.

The new economic normal is for all governments have all their hands around all the throats of those who produce, and do so with the precise bureaucratic expertise that they know just how hard they can squeeze without killing us.  Good luck if you believe that!  We vote to give them that power and we keep  voting to increase that power, to keep us moving in the wrong direction, running out of tools to keep mitigating it.  Soon it will be $20 trillion in debt and more than half the people not working at all.  What could possibly go wrong?
« Last Edit: June 28, 2016, 11:11:02 AM by DougMacG » Logged
ccp
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« Reply #916 on: June 28, 2016, 10:27:39 AM »

"if you take the other side of it as I do, it is a bit creepy how this inbred group of elites has so much influence and control over our lives. "

Yes.  And think Bill Gates (dropped out)  Justice Roberts and Kagan and Zuckerberg and more.

these people are not separated from Wall Street.  How does one think Zuckerberg got such access to funding and financial support.  Between Harvard and MIT the venture capatilists are flying around like vultures ready to invest advise and get him to the next ten levels .  I don't think he is the business genius Gates is.  Just my take .  Envy yes and no.

And yet the Left tried to deny this.  Listening to the non stop Trump bashing on CNN with almost no criticism of Clinton (except by the right of center wing pundits they have including now Cory Lewandowski who are ALWAYS marginalized by the liberal news hosts) they were last night mocking the implied delusion or illusion of the concept of "elites ".  With sarcastic questions as to who are the elites ? Are we elites ?  etc...  This is CNNs delusion of being fair and balanced.  Have controlling hosts who are always left wing interviewing the right of center guests , let them have their say but always qualify and subtly disagree with facial expression or closing comments like we will need to agree to disagree or we shall see or more overtly with nasty questions about racism bigotry etc.

You know the story.
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DougMacG
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« Reply #917 on: July 01, 2016, 09:27:53 AM »

A version of this post was published by HotGas.Net:
https://www.hotgas.net/2016/06/janet-yellen-fed-banking-monetary-policy/#disqus_thread
Clicks and comments welcome there as well.

I watched a Janet Yellen video called 'an hour of your life you will never get back' for you in case you don't want to see it:
http://gregmankiw.blogspot.com/2016/06/yellen-at-radcliffe.html
http://news.harvard.edu/gazette/story/2016/05/janet-yellen-honored-by-radcliffe-ponders-economy/

Janet Yellen is the most powerful woman in the world.  Decisions she makes affect your life.  If you include the long introductions and the advice to younger people, hers is an inspiring story of how she got to where she is and loves her field and her work.  She believes government, in this case The Fed, can alleviate the pain caused by the ups and downs of the private sector.  Something is upside down there, but let's run with it for a moment.

If you take the other side of it as I do, it is a bit creepy how this inbred group of elites has so much control over our lives.  The questioner is an economist I like, Greg Mankiw, Chair of the Economics Department at Harvard.  In the audience are Ben Bernanke, Loretta Lynch and others, a powerful group.  It is amazing how many of the Fed people, Wall Street people, Supreme Court Justices, Presidents, all went to the same schools.  Yellen went to both Harvard and Yale.  So did George Bush.  Bernanke went to Harvard.  Chief Justice John Roberts has two degrees from Harvard, so does Merrick Garland, 3 current justices went to Yale, Crafty went to Columbia, Obama Harvard, Hillary Yale, Trump Wharton and George Will Princeton.  Dorothy from Kansas was the last person of power to come from the heartland.  

Bernanke wrote a book on the Great Recession (he helped cause) and Yellen praised him for his work on that.  Showing up for the speech helps to keep the group in mutual back patting mode.  I was patiently listening for the negatives because I believe this economy is horribly under-performing and that the Fed is enabling the fiscal insanity of the other two branches. (Whoops, the Fed is not the third branch of government even thought the judiciary is now just a rubber stamp of elected liberalism.)

Zero interest rates are bad for the economy.  No one (but our Crafty) ever seems to say that.  We have a zero savings rate because of it; that didn't come up in the talk.  Why are interest rates still at roughly zero?  Because the economy is still too weak and too fragile to handle anything near a normal cost of money - in their own opinion - and the Fed has access and control of the most wide ranging and detailed economic information anywhere on the planet.  Why is the economy too weak and too fragile to handle real or normal, balanced, market interest rates?  Bad policies that are not being addressed by anything in her talk.  (See below.)

Of the financial collapse, Yellen says, "we didn't see it coming".  No they didn't.  She was on the forefront of warning about the housing bubble.  "We saw trees".  But they didn't see the forest by their own admission.  (So we put her in charge.)  She is quite humble but eager to brag about her predecessor and the team (she was head of the San Francisco Fed, 12th district).  The team responded fast and creatively and courageously and so on.  There should be a movie about it, starring some handsome young actor as Ben Bernanke.)  Not a word about how the Fed helped cause it!

So many great things are going on in our limping economy, she hardly had time to talk about the bad things.  We grew 14 million jobs since the bottom (while the population increased by more than that).  Maybe I have too much math and physics background, but waves are measured peak to peak or trough to trough, but those types of measure make this 'recovery' look like 8 wasted years we will never get back.  Unemployment (as measured dishonestly) dropped from 10% to 5%, now considered full employment [by others].  No mention of the weakness in that until pressed.

On the bad side, the number of people working part time who would like to be working full time is "unusually high", in the 8th year of the 'recovery'.

Not much improvement in wages (understatement of the decade), which is "suggestive of slack in the labor market", contradicting the unemployment improvement claim above.

Growth in "output" (GDP) is "remarkably slow".  

Productivity growth is VERY slow, 1/2% per year, "miserably slow", "a serious and negative development".
(I would like to come back to that since she didn't.)

Inflation is below the 2% target (the target is a crime in itself) due to the plunge in oil prices (nothing to do with inflation) and the appreciation of the dollar (all to do with failure in the world around us).

She sees currently weak growth picking up (greener grass just over that fence).  They intend to increase the "overnight lending rate" "gradually and cautiously" over the next few months (assuming growth picks up and it won't), and up from near zero to 3-3.25% within 5-7 years (assuming constant, uninterrupted growth, which also won't possibly happen).

She opposes negative interest rate policy for the "negative repercussions" (she is right on that) and agrees that zero interest rate policy limits the scope of policies the Fed has to address new problems and weaknesses that arise.  (Right again even though that is what they are doing.)  The Fed invented other tools in the face of this, "longer term asset purchases" that people like Yellen, Grannis and Wesbury don't like to call printing money (what did they purchase them with, thin air?).

As a true liberal leftist, she also believes in "greater latitude in fiscal policy" as a tool to address future downturns and weakness, as if public investment had the affect of private investment and as if $19 trillion in debt isn't already causing a burden and limiting the scope of future policy decisions.
--------------------------------
My own comments continued:

What did not come up at all are the underlying causes of the current malaise, over-taxation and over-regulation.

40% of people in their 20s with a college degree do not work in a job requiring a college degree.  100 million adults don't work at all.  Disability and food stamp recipient needs have skyrocketed DURING THIS 'RECOVERY' (not a recovery).  Wage growth is zero; productivity growth is zero; WHY?

Wages are tied to productivity growth and the demand for labor which is tied really to entrepreneurial and small business activities which are constrained (or crushed) by excessive taxes and regulations.

Productivity growth is tied to capital investment.  Think of digging a hole or a ditch with a broken shovel, a clean sharp shovel with a longer handle, a bobcat or a caterpillar.  Productivity goes up with better tools that cost money, in some cases lots of money, which means there has to be a good long term outlook, favorable economic conditions and a good, long term, AFTER TAX return realistically expected on that investment.  And no big threat that it will soon be closed or confiscated by the government.  This investment is not happening, Janet Yellen is telling us, though she is either too polite of too ignorant to criticize the administration and the congress for strangling our formerly vibrant private sector.

Productivity growth alone doesn't create higher wages, we need increased output growth too and some control over the supply of new cheap labor coming in.  Exactly the opposite of our current economic policies that stifle and punish capital investment, leave the borders open and offer programs for able people to not work in lieu of real job creation.  If you are the most powerful woman in the world and Chair of the U.S. Federal Reserve, get up on your bully pulpit and shout it!  Instead Janet Yellen is mostly silent.

The new economic normal is for all governments have all their hands around all the throats of those who produce, and do so with the precise bureaucratic expertise that they know just how hard they can squeeze without killing us.  Good luck if you believe that!  We vote to give them that power and we keep  voting to increase that power, to keep us moving in the wrong direction, running out of tools to keep mitigating it.  Soon it will be $20 trillion in debt and more than half the people not working at all.  What could possibly go wrong?
« Last Edit: July 01, 2016, 09:31:42 AM by DougMacG » Logged
G M
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« Reply #918 on: July 01, 2016, 11:41:23 AM »

They let you post there, despite not having a Trump colored koolaid ring around your mouth?
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DougMacG
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Posts: 8390


« Reply #919 on: September 16, 2016, 11:08:38 AM »

Monetary Trilemmas, who hasn't suffered one of those?
------------------------------------------------------------------
A fixed exchange rate, monetary autonomy and the free flow of capital are incompatible.

http://www.economist.com/news/economics-brief/21705672-fixed-exchange-rate-monetary-autonomy-and-free-flow-capital-are-incompatible

HILLEL THE ELDER, a first-century religious leader, was asked to summarise the Torah while standing on one leg. “That which is hateful to you, do not do to your fellow. That is the whole Torah; the rest is commentary,” he replied. Michael Klein, of Tufts University, has written that the insights of international macroeconomics (the study of trade, the balance-of-payments, exchange rates and so on) might be similarly distilled: “Governments face the policy trilemma; the rest is commentary.”


The policy trilemma, also known as the impossible or inconsistent trinity, says a country must choose between free capital mobility, exchange-rate management and monetary autonomy (the three corners of the triangle in the diagram). Only two of the three are possible. A country that wants to fix the value of its currency and have an interest-rate policy that is free from outside influence (side C of the triangle) cannot allow capital to flow freely across its borders. If the exchange rate is fixed but the country is open to cross-border capital flows, it cannot have an independent monetary policy (side A). And if a country chooses free capital mobility and wants monetary autonomy, it has to allow its currency to float (side B).

To understand the trilemma, imagine a country that fixes its exchange rate against the US dollar and is also open to foreign capital. If its central bank sets interest rates above those set by the Federal Reserve, foreign capital in search of higher returns would flood in. These inflows would raise demand for the local currency; eventually the peg with the dollar would break. If interest rates are kept below those in America, capital would leave the country and the currency would fall.  

Where barriers to capital flow are undesirable or futile, the trilemma boils down to a choice: between a floating exchange rate and control of monetary policy; or a fixed exchange rate and monetary bondage. Rich countries have typically chosen the former, but the countries that have adopted the euro have embraced the latter. The sacrifice of monetary-policy autonomy that the single currency entailed was plain even before its launch in 1999.

In the run up, aspiring members pegged their currencies to the Deutschmark. Since capital moves freely within Europe, the trilemma obliged would-be members to follow the monetary policy of Germany, the regional power. The head of the Dutch central bank, Wim Duisenberg (who subsequently became the first president of the European Central Bank), earned the nickname “Mr Fifteen Minutes” because of how quickly he copied the interest-rate changes made by the Bundesbank.

This monetary serfdom is tolerable for the Netherlands because its commerce is closely tied to Germany and business conditions rise and fall in tandem in both countries. For economies less closely aligned to Germany’s business cycle, such as Spain and Greece, the cost of losing monetary independence has been much higher: interest rates that were too low during the boom, and no option to devalue their way out of trouble once crisis hit.

As with many big economic ideas, the trilemma has a complicated heritage. For a generation of economics students, it was an important outgrowth of the so-called Mundell-Fleming model, which incorporated the impact of capital flows into a more general treatment of interest rates, exchange-rate policy, trade and stability.

The model was named in recognition of research papers published in the early 1960s by Robert Mundell, a brilliant young Canadian trade theorist, and Marcus Fleming, a British economist at the IMF. Building on his earlier research, Mr Mundell showed in a paper in 1963 that monetary policy becomes ineffective where there is full capital mobility and a fixed exchange rate. Fleming’s paper had a similar result.

If the world of economics remained unshaken, it was because capital flows were small at the time. Rich-world currencies were pegged to the dollar under a system of fixed exchange rates agreed at Bretton Woods, New Hampshire, in 1944. It was only after this arrangement broke down in the 1970s that the trilemma gained great policy relevance.

Perhaps the first mention of the Mundell-Fleming model was in 1976 by Rudiger Dornbusch of the Massachusetts Institute of Technology. Dornbusch’s “overshooting” model sought to explain why the newish regime of floating exchange rates had proved so volatile. It was Dornbusch who helped popularise the Mundell-Fleming model through his bestselling textbooks (written with Stanley Fischer, now vice-chairman of the Federal Reserve) and his influence on doctoral students, such as Paul Krugman and Maurice Obstfeld. The use of the term “policy trilemma”, as applied to international macroeconomics, was coined in a paper published in 1997 by Mr Obstfeld, who is now chief economist of the IMF, and Alan Taylor, now of the University of California, Davis.

But to fully understand the providence—and the significance—of the trilemma, you need to go back further. In “A Treatise on Money”, published in 1930, John Maynard Keynes pointed to an inevitable tension in a monetary order in which capital can move in search of the highest return:

This then is the dilemma of an international monetary system—to preserve the advantages of the stability of local currencies of the various members of the system in terms of the international standard, and to preserve at the same time an adequate local autonomy for each member over its domestic rate of interest and its volume of foreign lending.
This is the first distillation of the policy trilemma, even if the fact of capital mobility is taken as a given. Keynes was acutely aware of it when, in the early 1940s, he set down his thoughts on how global trade might be rebuilt after the war. Keynes believed a system of fixed exchange rates was beneficial for trade. The problem with the interwar gold standard, he argued, was that it was not self-regulating. If large trade imbalances built up, as they did in the late 1920s, deficit countries were forced to respond to the resulting outflow of gold. They did so by raising interest rates, to curb demand for imports, and by cutting wages to restore export competitiveness. This led only to unemployment, as wages did not fall obligingly when gold (and thus money) was in scarce supply. The system might adjust more readily if surplus countries stepped up their spending on imports. But they were not required to do so.

Instead he proposed an alternative scheme, which became the basis of Britain’s negotiating position at Bretton Woods. An international clearing bank (ICB) would settle the balance of transactions that gave rise to trade surpluses or deficits. Each country in the scheme would have an overdraft facility at the ICB, proportionate to its trade. This would afford deficit countries a buffer against the painful adjustments required under the gold standard. There would be penalties for overly lax countries: overdrafts would incur interest on a rising scale, for instance. Keynes’s scheme would also penalise countries for hoarding by taxing big surpluses. Keynes could not secure support for such “creditor adjustment”. America opposed the idea for the same reason Germany resists it today: it was a country with a big surplus on its balance of trade. But his proposal for an international clearing bank with overdraft facilities did lay the ground for the IMF.

Fleming and Mundell wrote their papers while working at the IMF in the context of the post-war monetary order that Keynes had helped shape. Fleming had been in contact with Keynes in the 1940s while he worked in the British civil service. For his part, Mr Mundell drew his inspiration from home.

In the decades after the second world war, an environment of rapid capital mobility was hard for economists to imagine. Cross-border capital flows were limited in part by regulation but also by the caution of investors. Canada was an exception. Capital moved freely across its border with America in part because damming such flows was impractical but also because US investors saw little danger in parking money next door. A consequence was that Canada could not peg its currency to the dollar without losing control of its monetary policy. So the Canadian dollar was allowed to float from 1950 until 1962.

A Canadian, such as Mr Mundell, was better placed to imagine the trade-offs other countries would face once capital began to move freely across borders and currencies were unfixed. When Mr Mundell won the Nobel prize in economics in 1999, Mr Krugman hailed it as a “Canadian Nobel”. There was more to this observation than mere drollery. It is striking how many academics working in this area have been Canadian. Apart from Mr Mundell, Ronald McKinnon, Harry Gordon Johnson and Jacob Viner have made big contributions.


But some of the most influential recent work on the trilemma has been done by a Frenchwoman. In a series of papers, Hélène Rey, of the London Business School, has argued that a country that is open to capital flows and that allows its currency to float does not necessarily enjoy full monetary autonomy.

Ms Rey’s analysis starts with the observation that the prices of risky assets, such as shares or high-yield bonds, tend to move in lockstep with the availability of bank credit and the weight of global capital flows. These co-movements, for Ms Rey, are a reflection of a “global financial cycle” driven by shifts in investors’ appetite for risk. That in turn is heavily influenced by changes in the monetary policy of the Federal Reserve, which owes its power to the scale of borrowing in dollars by businesses and householders worldwide. When the Fed lowers its interest rate, it makes it cheap to borrow in dollars. That drives up global asset prices and thus boosts the value of collateral against which loans can be secured. Global credit conditions are relaxed.

Conversely, in a recent study Ms Rey finds that an unexpected decision by the Fed to raise its main interest rate soon leads to a rise in mortgage spreads not only in America, but also in Canada, Britain and New Zealand. In other words, the Fed’s monetary policy shapes credit conditions in rich countries that have both flexible exchange rates and central banks that set their own monetary policy.

Rey of sunshine
A crude reading of this result is that the policy trilemma is really a dilemma: a choice between staying open to cross-border capital or having control of local financial conditions. In fact, Ms Rey’s conclusion is more subtle: floating currencies do not adjust to capital flows in a way that leaves domestic monetary conditions unsullied, as the trilemma implies. So if a country is to retain its monetary-policy autonomy, it must employ additional “macroprudential” tools, such as selective capital controls or additional bank-capital requirements to curb excessive credit growth.

What is clear from Ms Rey’s work is that the power of global capital flows means the autonomy of a country with a floating currency is far more limited than the trilemma implies. That said, a flexible exchange rate is not anything like as limiting as a fixed exchange rate. In a crisis, everything is suborned to maintaining a peg—until it breaks. A domestic interest-rate policy may be less powerful in the face of a global financial cycle that takes its cue from the Fed. But it is better than not having it at all, even if it is the economic-policy equivalent of standing on one leg.
« Last Edit: September 16, 2016, 12:16:17 PM by DougMacG » Logged
ccp
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« Reply #920 on: September 20, 2016, 07:44:55 PM »

For once I cannot say I disagree with Elizabeth Warren on this:

https://www.yahoo.com/finance/news/wells-fargo-ceo-full-responsibility-022343031.html
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« Reply #921 on: September 20, 2016, 09:06:55 PM »

Indeed!

Important point here-- this is why her supporters like her!!! 

Even more important point-- we should be beating her to it!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

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« Reply #922 on: October 11, 2016, 10:07:05 AM »

Monday Morning Outlook
________________________________________
Inflation Ready to Rise To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 10/10/2016

One of the key excuses for the Federal Reserve to hold off raising rates again and again, and to raise them very slowly, is that inflation remains extremely low.

The consumer price index is up only 1.1% in the past year. The Fed's preferred measure of inflation – for personal consumption expenditures, or PCE – is up 1.0%. The US doesn't face deflation, but the overall inflation statistics are, and have remained, low.

But the money supply is accelerating, the jobs market looks very tight, and underneath the calm exterior, there are some green shoots of inflationary pressure.

The "core" measures of inflation, which exclude volatile food and energy prices, are not nearly as contained as overall measures. And before you say everyone has to eat and drive, realize that both food an energy prices are volatile and global in nature. They don't always reveal true underlying price pressures.

The 'core" CPI is up 2.3% in the past year, while the "core" PCE index is up 1.7%. In other words, a drop in food and energy prices has been masking underlying inflation that is already at or near the Fed's 2% target. Energy prices have stabilized and food prices will rise again. As a result, soon, overall inflation measures are going to be running higher than the Fed's target.

Just look at housing costs – a non-traded good – which makes up one-third of the CPI. Government statisticians measure this as "Rent of Shelter," which includes normal rents, hotel costs, and owners' equivalent rent (the rental value of owner-occupied homes). It's up a whopping 3.4% in the past year and has accelerated in each of the past six years.

Housing makes up a smaller share of the PCE price index, but medical care costs make up a larger share of that index. Government data show medical care costs up 4.9% in the past year, the fastest increase since 2007.

Although some (usually Keynesian) analysts are waiting for much higher growth in wages before they fear rising inflation, the fact is that wage growth is already accelerating. Average hourly earnings are up 2.6% in the past year versus a 2.0% gain only two years ago. Moreover, as a paper earlier this year from the San Francisco Fed pointed out, this acceleration is happening in spite of the retirement of relatively high-wage Baby Boomers and the re-entry into the labor force of workers with below-average skills.

But we don't think wages cause inflation – money does. Inflation is too much money chasing too few goods. The Fed has held short-term interest rates at artificially low levels for the past several years while it's expanded its balance sheet to unprecedented levels. Monetary policy has been loose.

But banks have held most of the Fed's Quantitative Easing (QE) as excess reserves. Banks have record loans on their books, but they also hold $2.2 trillion in excess reserves. Most people believe QE was, and is, temporary. So banks have been reluctant to lend it out. After all the Fed could withdraw the reserves, unwind QE, and banks would be forced to "call" their loans.

But as the Fed has postponed the process of reducing its balance sheet, banks have started to expand the M2 money supply. M2 grew roughly 6% annualized between January 2009 and December 2015. But, so far this year, from January to September, M2 has expanded at an 8.6% annualized rate. More money brings more inflation.

None of this means hyperinflation is finally on its way. In the past, inflation has taken time to build, leaving room for the Fed to respond by shrinking its balance sheet and getting back to a more normal monetary policy.

In the meantime, this will be the last year in a long while, where we see inflation below the Fed's 2% target. Look for both higher inflation and interest rates in the years ahead.
________________________________________
This information contains forward-looking statements about various economic trends and strategies. You are cautioned that such forward-looking statements are subject to significant business, economic and competitive uncertainties and actual results could be materially different. There are no guarantees associated with any forecast and the opinions stated here are subject to change at any time and are the opinion of the individual strategist. Data comes from the following sources: Census Bureau, Bureau of Labor Statistics, Bureau of Economic Analysis, the Federal Reserve Board, and Haver Analytics. Data is taken from sources generally believed to be reliable but no guarantee is given to its accuracy.


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« Reply #923 on: October 25, 2016, 10:23:13 AM »

In Venezuela they found the point where it is too late to prevent disaster and money buys nothing.  Unable to learn from their experience, we copy them.  Our economy is too great to be thrown into crisis?  Does anyone remember 2008?

Money matters and maybe we should be managing according to some set of rules.  Instead and because of the so-called dual mission of the Fed, our Fed is trying to fix flat tires by putting more gasoline in the carburetor, when they should be  minding our currency - with some fairly consistent set of rules.

For what little any of us know about money including the Fed Chair and governors, there are some models and rules out there with varying experiences with accuracy and reputation.  Best and state of the art today is the "Taylor rule". 

The Fed doesn't follow its own rules.  In the place of rules and rationality we see from the central banks, quantitative easing, zero interest rates, negative interest rates, and the next tool coming, "helicopter money".

  "Last month Janet Yellen presented a policy framework for the future centered around a Taylor rule, noting that the Fed has deviated from such a rule in recent years.  A week later, her FOMC colleague, Jeff Lacker, also showed that the Fed has deviated from a Taylor rule benchmark, adding that now is the time to get back."
https://economicsone.com/2016/08/30/jackson-hole-xxxv/

One place to look at the Taylor Rule is in the writings of Prof John B Taylor of Stanford Univ.  There are formulas to use as guideposts to policy for setting the Fed Funds and the like.  In this paper, he talks about the balance between discretion and rules:

http://web.stanford.edu/~johntayl/Onlinepaperscombinedbyyear/1993/Discretion_versus_Policy_Rules_in_Practice.pdf
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« Reply #924 on: October 25, 2016, 10:44:50 AM »

"The Fed doesn't follow its own rules."

Doug,  I am ignorant of such matters.  Why is this?  Is it politics?
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« Reply #925 on: October 25, 2016, 11:20:20 AM »

"The Fed doesn't follow its own rules."

Doug,  I am ignorant of such matters.  Why is this?  Is it politics?


Crafty and I have both warned here of the danger of the Fed's dual mission that came out of the Humphrey Hawkins Act signed into law in 1978.  What happens out of it is the attempt to solve things that are not monetary in nature with monetary policy.

In the late 1970s it was believed that unemployment and inflation are offsetting phenomenon and that the Fed shouldn't just fight inflation but also take into consideration the pursuit of full employment in the economy.  But in fact, the Fed contracted monetary policy curbing inflation and Reagan cut tax rates ending the stagnation and unemployment.

Having a second mission for the Fed means not paying full attention to their primary mission.  Yes there is a time and place for monetary policy to coordinate with other policies, such as in the crisis of 2008, but not coordinate with the politicians every day, every year and in every situation.  It makes Fed policies become political, the exact opposite of the intent of having an independent Fed.

As a consequence of this, we had expansionist monetary policies after the crisis and recession of 2001, perhaps wisely, but it continued all the way through to the financial crisis of 2008 and was most certainly one of the major causes of the bubble that became certain to burst.  Our monetary policy was also expansionary all the way through the Obama years even though we are told by the highest authority this already is full employment, a contradiction I have been pointing out.

Humphrey–Hawkins Full Employment Act, 1978  (Thank you Hubert Humphrey...)
"Mandates the Board of Governors of the Federal Reserve to establish a monetary policy that maintains long
-run growth, minimizes inflation, and promotes price stability.  ...
Requires the Chairman of the Federal Reserve to connect the monetary policy with the Presidential economic policy
https://en.wikipedia.org/wiki/Humphrey%E2%80%93Hawkins_Full_Employment_Act

The Fed's Bipolar Mandate
http://www.wsj.com/articles/SB10001424052748704648604575620522989880684

Lawmakers seek to change Federal Reserve's
Bove Opposes QE2, Supports Cutting U.S. Deficit and Debt
Nov. 15 (Bloomberg) -- Richard Bove, an analyst at Rochdale Securities, talks about his opposition to the Federal Reserve's policy of quantitative easing. Bove, in a group including former Republican government officials and economists, urged Fed Chairman Ben S. Bernanke in a letter to stop his expansion of monetary stimulus, saying it risks an inflation surge.

Washington Post  Tuesday, November 16, 2010
Two influential Republican lawmakers called Tuesday for a fundamental remaking of the Federal Reserve's mission, arguing that the central bank should stop trying to reduce unemployment and instead focus solely on keeping inflation low.
   The proposal by Sen. Bob Corker (Tenn.) and Rep. Mike Pence (Ind.) would end the three-decade-old "dual mandate" of the Fed, its legal charge from Congress to simultaneously aim for maximum employment and price stability.
http://www.washingtonpost.com/wp-dyn/content/article/2010/11/16/AR2010111606151.html

George Will: The Fed falls into a dual-mandate trap
http://www.presstelegram.com/article/ZZ/20101117/NEWS/101119392
« Last Edit: October 25, 2016, 11:42:47 AM by DougMacG » Logged
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« Reply #926 on: October 25, 2016, 11:38:19 AM »

Thanks for detailed reply.
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« Reply #927 on: November 01, 2016, 01:16:55 AM »

BTW Herbert Cain, who was the head of one of the Fed banks for a time, made repealing Humphrey Hawkins one of the planks in his platform.
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« Reply #928 on: November 15, 2016, 12:03:52 AM »

Government Bond Rout Deepens on Trump’s Economic Plans
U.S. 10-year note’s yield briefly touched highest level since last December
By Min Zeng and
Christopher Whittall
Updated Nov. 14, 2016 11:04 p.m. ET
159 COMMENTS

The sudden surge in long-term interest rates has investors speculating once again about a turn in the long decline for bond yields—with a lot at stake for companies and consumers.

Many U.S. mortgage rates are tied to 10-year bond yields, and higher yields can mean higher borrowing costs for companies. Rising rates make the U.S. dollar more attractive, risking capital flight out of developing countries.

Bond yields shot up again Monday. The benchmark 10-year U.S. Treasury note touched 2.30%, up from a close of 1.867% on Election Day. That move would rank among the sharpest jumps for a similar period since 2008. The yield settled at 2.224%, its highest level since January.

Average rates on 30-year fixed conforming mortgages on Monday hit 4%, also the highest since January, according to MortgageNewsDaily.com, and up nearly 0.4 percentage point since the election. While still only roughly half the average over the past 45 years, according to Freddie Mac, the quick rise has lenders worried that home loans could become more expensive far sooner than anticipated.

Debt issued by U.S. companies has been hit as well. While the S&P 500 is up 1.2% since last Tuesday, the iShares iBoxx $ Investment Grade Corporate Bond ETF has fallen 2.5%. The iShares iBoxx $ High Yield Corporate Bond ETF, which tracks bonds issued by junk-rated companies, fell 2.2%.

The question is how far those markets have to run. Rates on mortgages and junk-rated debt are still low by historical standards, as are yields for benchmark Treasurys, which only now are returning to the levels at which they opened the year.

“There has been a huge repricing in the bond market, as we have a new game in town,’’ said Jason Evans, co-founder of hedge fund NineAlpha Capital LP in New York. “But there are lots of crosscurrents,” he said, including uncertain policy details from President-elect Donald Trump.

U.S. President Barack Obama, right, with U.S. President-elect Donald Trump, who has promised infrastructure spending and tax cuts leading to a rise in government bond yields, on Nov. 10. ENLARGE

U.S. President Barack Obama, right, with U.S. President-elect Donald Trump, who has promised infrastructure spending and tax cuts leading to a rise in government bond yields, on Nov. 10. Photo: Bloomberg

Mr. Evans said he pared back wagers on higher yields Monday as the pace of the rise over the past week was sharper than he had anticipated.

The jump in yields was kicked off by the surprise election-night victory by Mr. Trump, who has advocated infrastructure spending, tax cuts and lighter regulation to promote jobs and boost the U.S. economy.

Analysts have interpreted those remarks as a signal Mr. Trump would push the U.S. government to borrow and spend. Recent survey data also has shown an upturn in global manufacturing. Those things have counterbalanced the voracious demand for safe government debt spurred by central-bank bond buying and political shocks like the U.K.’s vote to leave the European Union.

The world should welcome higher long-term bond yields insofar as they signal a brighter outlook for economic growth and a return to moderate inflation after years of fear about falling consumer prices. Central banks have been trying hard—especially in Europe and Japan, without much success—to drag inflation higher.

The long run of low rates also has battered banks, pension funds and insurance companies.

But metrics that use market data to gauge inflation expectations are rising. In the U.S., the 10-year break-even rate—the yield premium investors demand to hold the 10-year Treasury note relative to the 10-year inflation-protected security, rose to 1.93 percentage points during Monday’s session, a two-year high. At that level, it suggests that investors are expecting the U.S. inflation rate to be 1.93% on average over the next 10 years.

The break-even rate fell below 1.4% shortly after the Brexit referendum, but is now moving toward the Fed’s 2% inflation target.

Investors are betting that expectations for higher inflation and growth could push the Federal Reserve to raise interest rates at a faster clip than previously anticipated.

Fed-funds futures, used by hedge funds and money managers to place bets on U.S. interest-rate policy, suggested an 86% probability of a rate increase at the Fed’s December meeting, according to data from CME Group. The chances were pegged at 81% last week.

The yield on the two-year Treasury note, highly sensitive to the Fed’s policy outlook, rose above 1% Monday morning to the highest level since January. It later was at 0.984%, up from 0.906% Thursday. Treasury markets were closed Friday.

The sharp rise in bond yields has been painful for investors who bought at record-low yields this summer.

This year through July 8, when the 10-year yield settled at a record low, the Treasury market had handed investors a total return of 6.23%, according to Bloomberg Barclays US Treasury index.

But in the first 10 days of November, the index logged a decline of 1.57%, pulling the return for 2016 down to 2.29%. Total return includes bond price gains and interest payments.

Some investors expect the bond rout to subside. Sluggish global growth and easy-money policies are powerful forces keeping yields down. Even after spiking, the 10-year German bund yields a mere 0.3%. Japan’s extreme monetary policy has kept its 40-year bond yielding just 0.6%. Previous yield jumps, most notably in the spring of 2015, quickly melted away.

Mitul Patel, head of interest rates at Henderson Global Investors, said the unexpectedly poor performance from bond markets has the potential to lead to outflows from the asset class. That in turn could raise yields to the point investors start buying again, he said.

Some analysts say higher yields would attract interest from pension funds and life-insurance firms, which need high-grade long-term debt to match their obligations such as paying retired workers.

“Until there is greater clarity on the issues, we are advising investors not to overreact,” said James DeMasi, chief fixed-income strategist at Stifel Nicolaus Co.
Related

Corrections & Amplifications:
Treasury yields, which rise as prices fall, are hovering around their highest level since early January after recording their largest one-week gain in more than three years following Mr. Trump’s victory. An earlier version of this article incorrectly stated that the gain was the largest in more than three months. (Nov. 14)

Write to Min Zeng at min.zeng@wsj.com and Christopher Whittall at christopher.whittall@wsj.com
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« Reply #929 on: November 17, 2016, 01:20:41 PM »

The Consumer Price Index Increased 0.4% in October To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 11/17/2016

The Consumer Price Index (CPI) increased 0.4% in October, matching consensus expectations. The CPI is up 1.6% from a year ago.

"Cash" inflation (which excludes the government's estimate of what homeowners would charge themselves for rent) rose 0.4% in October and is up 1.1% in the past year.

Energy prices rose 3.5% in October, while food prices were unchanged. The "core" CPI, which excludes food and energy, increased 0.1% in October, coming in below the consensus expected rise of 0.2%. Core prices are up 2.1% versus a year ago.

Real average hourly earnings – the cash earnings of all workers, adjusted for inflation – rose 0.1% in October and are up 1.2% in the past year. Real average weekly earnings are up 0.9% in the past year.

Implications: Consumer prices surged in October, rising 0.4%, coming on the heels of healthy increases in both August and September. Although consumer prices are up only a tame 1.6% in the past year, they're up at a 2.5% annual rate in the past six months and a 3.5% annual rate in the past three months (the fastest three-month pace since 2012). Energy prices led the index higher in October, as gasoline jumped 7%. As we saw earlier this week in retail sales as well as both import and producer prices, consumer energy prices turned positive on a year-to-year basis for the first time since mid-2014. In other words, the key headwind on inflation we have seen over the past two years is now turning into a tailwind. Conversely, food prices, unchanged in October for a fourth consecutive months., remain a slight drag on overall inflation, and are down 0.3% in the past year. Stripping out the typically volatile food and energy components, "core" consumer prices rose 0.1% in October and are up 2.1% in the past year. The October increase in "core" consumer prices was led by housing. Owners' equivalent rent, which makes up about ¼ of the CPI, rose 0.3% in October, is up 3.4% in the past year, and will be a key source of higher inflation in the year ahead. Medical care costs took a breather in October but continue to be an area to watch, up 4.3% in the past year and showing acceleration over the past three- and six-month periods. In addition to rising inflation, "real" (inflation-adjusted) average hourly earnings also rose in October, up 0.1%, and are 1.2% higher in the past year. Along with other recent readings on inflation - and employment continuing to show health gains - today's CPI report should remove any doubt in the Fed's mind that a December rate hike is needed.
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« Reply #930 on: November 22, 2016, 01:35:42 AM »

Cash and Kashkari
The consensus grows that Dodd-Frank won’t stop the next financial crisis.
Neel Kashkari, president and chief executive officer of the Federal Reserve Bank of Minneapolis, speaks at the Economic Club of New York in New York, U.S., on Wednesday, Nov. 16, 2016. ENLARGE
Neel Kashkari, president and chief executive officer of the Federal Reserve Bank of Minneapolis, speaks at the Economic Club of New York in New York, U.S., on Wednesday, Nov. 16, 2016. Photo: Bloomberg News
Updated Nov. 21, 2016 7:37 p.m. ET


As President Obama prepares to leave town, the world is learning that his reforms aren’t holy writ. The latest evidence is Minneapolis Federal Reserve President Neel Kashkari’s plan to end too-big-to-fail banks.

Mr. Kashkari, who rolled out his proposal last week, starts with an understanding that the 2010 Dodd-Frank Act’s vast regulatory superstructure isn’t the protector of taxpayers that its authors claim. “I start with the assumption that regulators are going to miss the next crisis,” he said in a visit to the Journal. “We’re going to miss it.”

That’s refreshing modesty in a federal regulator, and it has the added advantage of being true. Financial manias become panics because everyone assumes there’s no problem while the good times roll. Exhibit A was the New York Fed’s failure to rein in Citigroup’s off-balance sheet vehicles before the 2008 panic. Tim Geithner’s Fed regulators were as clueless as anyone.

Mr. Kashkari knows the territory. A Goldman Sachs alum, he helped design and implement the Troubled Asset Relief Program for Treasury Secretary Hank Paulson in 2008. The Minneapolis Fed chief was also in the room in 2008 when federal officials decided to make taxpayers stand behind the subordinated debt of mortgage monsters Fannie Mae and Freddie Mac—though that debt was never supposed to be guaranteed.

The lesson he drew is that if you want to reduce the risk that taxpayers will have to finance another rescue, financial giants need to be much better fortified before the next panic hits. And that means they need to have much more equity and less debt.

He is proposing that the biggest banks vastly increase the amount of equity capital they hold. The plan doesn’t require any big banks to shrink, merely to raise more capital over five years so that it reaches 15% of assets. At that point, if the Treasury Secretary refuses to certify that a giant bank is no longer a systemic risk, capital would rise to 24%. By contrast the Fed now requires 5%. The practical implication is that some banks would shrink on their own unless the economies of scale are valuable enough to justify their size.

Mr. Kashkari and his team want to make the chances of a bailout extremely small. They calculate that under the pre-crisis regulations there was an 84% chance of a crisis requiring taxpayer bailouts over a 100-year period, and that Dodd-Frank reduced that risk only to 67%. They want a plan that would bring the risk below 10% while still passing a cost-benefit test, and they claim to have done it. Let the debate over statistics and methodology begin.

There should be skepticism about other parts of the Kashkari plan, such as his maintenance of much of the existing regulatory structure and his desire to control large financial firms that aren’t banks. Bank regulators call these firms “shadow banks,” meaning every finance business they don’t control. But there’s no reason to make taxpayers stand behind hedge funds.

We prefer the trade-off between capital and regulation offered by House Financial Services Chairman Jeb Hensarling, who would give banks the choice of raising more capital in return for less Dodd-Frank micromanagement. Mr. Kashkari says that may well be the result down the road of his plan too. The larger point is that a consensus is growing that Dodd-Frank is flawed and has stymied economic growth without making the financial system safer. The Kashkari plan is a welcome addition to this debate.
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Crafty_Dog
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« Reply #931 on: November 25, 2016, 11:22:26 PM »

Dollar to Benefit if $2.5 Trillion in Cash Stashed Abroad Is Repatriated
President-elect Donald Trump has said he would propose a one-time cut of the repatriation tax to 10% to lure money back to U.S.
By Chelsey Dulaney
Updated Nov. 25, 2016 1:29 p.m. ET
65 COMMENTS

Part of $2.5 trillion in profits held overseas by companies such as Apple Inc. and Microsoft Corp. could be heading back to the U.S., a move analysts say could further fuel the U.S. dollar’s powerful rally.

U.S. corporations have been holding billions in earnings and cash abroad to avoid paying a 35% tax that would be levied whenever the money is brought home. President-elect Donald Trump has said he would propose a one-time cut of the repatriation tax to 10% to lure money back to the U.S. that can be spent on hiring, business development and funding Mr. Trump’s fiscal stimulus proposals.

Market optimism that the stimulus plan can generate U.S. economic growth and push the Federal Reserve to raise interest rates has buoyed the dollar against a basket of major trading partners toward 14-year-highs since the Nov. 8 presidential election.

Now, some say the prospect of companies repatriating perhaps hundreds of billions of dollars could offer more impetus to the U.S. currency’s rally.

“However small, however big this flow of money will be, it will be positive for the case of dollar strength,” said Daragh Maher, head of U.S. foreign-exchange strategy for HSBC Holdings. “There will most likely be an inflow into dollars.”

When a company repatriates earnings from abroad, it may have to exchange the local currency for the U.S. dollar. The $2.5 trillion hoard of overseas earnings is highly concentrated in the technology and pharmaceutical sectors, according to Capital Economics. Microsoft held about $108 billion in earnings overseas as of 2015, while pharmaceutical giant Pfizer Inc. had $80 billion. General Electric Co. had $104 billion overseas, according to Capital Economics. Analysts note that many companies already hold their overseas earnings in U.S. dollar assets, which would mute the demand for dollars.

Representatives for Microsoft, Pfizer and GE declined to comment. A representative for Apple didn’t immediately respond to a request for comment.
ENLARGE

Though companies typically don’t disclose the composition of their overseas earnings, analysts expect the euro, British pound and Japanese yen would come under pressure if repatriations pick up.

The U.S. last introduced a one-time tax cut for repatriations a decade ago, under the Homeland Investment Act of 2004. More than $360 billion was repatriated, according to Internal Revenue Service data, helping drive the dollar up 13% against a basket of six major peers in 2005, along with tighter U.S. monetary policy.

A similar tax cut “is probably the lowest hanging fruit of all the fiscal measures Mr. Trump has proposed,” said Mark McCormick, head of North American foreign-exchange strategy at TD Securities. “Democrats, Republicans, many people have found this a very easy policy to pursue.”

Mr. McCormick thinks the repatriation tax could be passed by Congress as early as 2017, though he expects the impact on the dollar to be relatively modest since many companies already hold their earnings in U.S. dollars.

A 2011 report from Congressional Research Service, drawing on data from 27 U.S. multinational companies, said that 46% of their overseas earnings were in U.S. dollar assets.

TD estimates that a repatriation “holiday” would spur around $330 billion in inflows, though the bank thinks only $100 billion would need to be swapped for the dollar.

Analysts at Bank of America Merrill Lynch estimate closer to $400 billion in foreign currencies would need to be exchanged for the dollar. Given the “potentially significant” foreign-exchange moves, they have recommended clients make bets that the dollar will rise against European and Asian currencies.

If Congress makes the repatriation tax mandatory, unlike the optional Homeland Investment Act tax, both banks say inflows into the dollar would be much larger.

Mr. McCormick sees another reason why the repatriation tax would be a boon for the dollar. It would likely shrink the U.S.’s $120 billion current-account deficit, making assets in the U.S. more attractive to overseas investors and supporting the dollar.

“Growth and interest rates are already favoring the U.S.,” he said. “If you get more capital inflows, that’s going to be very good for the dollar.”

Write to Chelsey Dulaney at Chelsey.Dulaney@wsj.com
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