Cause for Concern: No Change from the Fed 31 comments
Tim Iacono
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Aside from a reduction in the purchase of GSE debt from $200 billion to $175 billion, there were no substantive changes to the Federal Reserve's policy statement today after the central bank concluded two days of deliberation.
Naturally, the "freakishly low" short-term lending rate of between 0.0 and 0.25 percent will be
maintained and, more importantly, the key phrase "for an extended period" was left intact.
For those of you not wearing a Fed decoder ring, this means, "Continue to speculate with borrowed money on any asset class that you think might go up in price because you've got nothing to fear from the central bank."
Of course, markets reacted as you might have expected - the dollar went down and just about everything else went up. Gold moved up about $6 an ounce within minutes.
This is shaping up to be a "recovery" in asset prices that looks a lot like the last one. The only thing is, if history is a guide, asset prices don't really start to move until they start raising interest rates - that seems to be many, many months away.
For those of you who might be interested in this sort of thing, the last two policy statements are shown side-by-side below.
Just a little light typing was required this month:
I'm probably not alone in thinking that this is going to end badly ... again.
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This article has 31 comments:
Two thieves are brought before a king. He says, "Take them out and hang them". One of them says, "Wait, your Majesty. If you give me a year I can get your horse to talk. I swear it." The king say, "OK, you have your chance."
When they are alone again, the other thief says to the thief that said he can get the horse to talk, "What do you mean, you can get the horse to talk? You don't know anything about making horses talk." The first thief says, "A lot can happen in a year. The king might die, I might die, and who knows, maybe I can make the horse talk."
The dumbest thing you could do is nip the recovery in the bud.
Amen.
The Fed is just building the dam higher and higher....but the concrete they're using is getting weaker and weaker.
Let's just say you won't want to be here when the dam breaks....
In my opinion, the right thing to do is the acknowledge what the true state of the economy is (i.e. miserable) and stop artificially propping it up and telling everyone that the recovery is underway. Once we own up to this, we can finally channel the stimulus is the right direction which is into the hands of small businesses and factories.....not big Wallstreet banks.
On Nov 04 04:29 PM American in Paris wrote:
> The Fed did the right thing. The economy is incredibly weak with
> massive excess capacity.
>
> The dumbest thing you could do is nip the recovery in the bud.
On Nov 04 05:49 PM ryanclarke wrote:
> I know
> the implications of telling China and Japan to eat it are very political
> and drastic ... but so is paying a wheelbarrow of money for any imported
> goods into the U.S. Obama's union teams seem to think the weak dollar
> will bring jobs back to this country ....
Lots of commercials encouraging credit card purchases. FHA and Fannie/Freddie pushing home buying at 3% down payment.
The FED and the media are going to convince everyone that things are "normal" so then they will go back to spending what they don't have.
The boys on Wall Street will go back to gambling with derivatives.
The formerly "lagging" indicator of employment will surprise to the downside.
And then....?
They didn't change anything because NOTHING HAS CHANGED from a year ago. Actually, things are probably worse. There is no recovery to date, it's all BULLSH*T. If things were better they would have push rates a little bit. They are the same because you can't slow down something that IS NOT happening. And folks, if something was happening, explain to me why the unemployment numbers keep going up????
More unemployed, more foreclosures, more bank failures, more uncertainty, more money printed.....more bad, less good!
They are getting ready for major failures with their new to big to fail legislation - you wait and see!!! Citigroup, Bank of America, AIG, GM again, Chrysler, Fannie Mae, Freddie Mac, GE..........They will wipe out the bond holders and stock holders and these companies will be able to wipe billions off their books and it won't cost taxpayers a penny. Makes you wanna go out and buy some stock, don't it!!!!!!!
You watch what happens in the next six months - NOTHING!!!! Hope and propaganda is your market friend. Watch your money!
Perhaps we are now ready to take the next step.
The Fed has made itself so irrelevant to the cause of financial responsibility (the only foundation of a true recovery) that the Fed simply doesn't matter anymore.
I have observed for years that Fed announcement days have been treated as more important than the sum total of all company earnings statements. Why is that? Because the Fed's economic manipulations have been more important than the market's fundamentals since the inception of the Greenspan era.
So... I now declare that era closed. Economic fundamentals matter again, and the Fed doesn't. The Fed is committed to financial speculation, period (let's not even mention the SEC), and those committed to economic growth (and savings) had better act on that knowledge.
I have a license to speculate, but I don't wish to play that game. I'm sitting it out in gold until sanity returns - which it will, as it always does (absent the rise of totalitarianism - always a risk in extreme circumstances).
When the Fed has been entirely discredited and the market again becomes subject to rational forces, I will re-enter the market. I just don't yet know when that will be. The abolition of the Fed might be a positive indicator, though!
So on that note, when rates rise will the housing market really be better than it was before. I would generally say when mortgage rates hit 7-8% we will be quite a bit worse off and Fannie, Freddie, Ginnie, the Fed, Treasury, FDIC, and FHA will be in a world of trouble dealing with a gamut of bad bonds, foreclosed properties, and no demand. As we all learned not too long ago, persistently low interest rates only encourages those who can't afford assets to purchase them. Especially if they feel they can walk away and leave the lender out to hang when rates rise. And especially when the lender thinks it can walk away and leave the taxpayer out to dry.
There is a big cause for concern indeed with no change from the Fed.
How could one print itself to richness? Akin to the infamous pain killer drug VIOXX, the side effects will only show up years down the road. Then, it would be too late.
Stay tuned. The market crash occurred in September 2008 and it is now November 2009. Where we are in now is only ACT I Scene II of the Play. As I gaze into the future, I see a new kind of economic hell too horrifying to describe.
The analysis was spot on as well, and we have a nice comment stream as well despite a couple of spammers thrown in.
Now there's not much to do other than to hope & pray the patient begins to come out of his coma, realizing there are still significant problems to overcome even if that happens.
Leave threm alone.
After all, they solved the crisis.
RIGHT?
On Nov 04 10:59 PM Teutonic Knight wrote:
> I am an engineer by training and not a seance. However, my inside
> tells me somehow there is something very sinister about this printing
> madness.
>
> How could one print itself to richness? Akin to the infamous pain
> killer drug VIOXX, the side effects will only show up years down
> the road. Then, it would be too late.
>
> Stay tuned. The market crash occurred in September 2008 and it is
> now November 2009. Where we are in now is only ACT I Scene II of
> the Play. As I gaze into the future, I see a new kind of economic
> hell too horrifying to describ
the long end is trying to tell Ben something.
--rq
I'm afraid you're quite right, as I just saw the jury returning with the verdict -
"Not guilty, by reason of insanity".
TK
On Nov 05 12:34 AM j-dub wrote:
> Why is everyone soooooooooooooo concerned with everything the central
> bank does?
> Leave threm alone.
> After all, they solved the crisis.
>
> RIGHT?
As I alluded to in another post, wasn't it about three weeks ago that the $$$ was tanking and gold rocketing until BB came out on a Sunday to speak to Main Street USA -- I mean Main Street Beijing - to hint that the Fed would be raising rates soon?
Why anyone would believe anything BB or his sidekick TG would say at this point is beyond my understanding.
Also look at upside volume vs. downside... That's is the real story...
Or would you rather listen to a former chairman of the NASDAQ now behind bars; or a former knight who play great cricket but waiting to be behind bars; or that someone now in the White House whose cape in his chest reads a "BIG S" and who claimed he could "CAP" unemployment at 8%? The list goes on and on....
TK
On Nov 05 04:55 AM rick12345 wrote:
> The day I start listening to economic advice from a software engineer
> will also be the day they cart me away in a straight jacket. You
> guys are crazy.
A guy is walking down the street when he sees a man on fire. He rushes over and says, "Sir! Sir! You're on fire!" The burning man says, "On fire? Let me check. My models don't show anyone on fire. Therefore I can't be on fire." The passerby says, "Oh, a macro economist. Never mind."
What really puzzles me, though, is why he is still in his job. He created a disaster and then ignored or didn't recognize it. At the first opportunity he should be gone. Finding a replacement who isn't just as bad could be a problem, but we should at least try.
We're behaving like a battered woman. We know that statistics say that we are likely to die at the hands of our abuser, but we don't flee because we are more comfortable with the known abuse than the unknown.
The real problem isn't the chairman of the Fed however, it is that the Fed exists. Our system was designed by financial interests in order for the rich to steal from the poor. And it works great for that. Sort of like those programmers who used to take the fractions of pennies from interest calculations and put them in their own bank accounts. Except it uses inflation to steal from everyone else and give it to the banks. And the periodic blowups are also a result of that faulty design. The system is unstable because it is a positive feedback system; and it controls the wrong variable, interest instead of money supply.
Oh well, it is kind of fun to watch a slow motion train wreck like this. Something to tell my descendants about, a once in a lifetime occurrence. :-^