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  • The Event That Will End The Bull Market [View article]
    "Looking ahead, the Fed may not be as quick to rush out and provide further support if stock prices start to sink... it's time instead for the stock market to go it on its own..."

    The Fed does not race out to save equity markets. Surely the Fed cares about the wealth effect in markets and home equity, along with credit availability, but it's focus is the financial system not a closed circle of traders betting on price. The latter happens on it's own if the financial markets are functioning and investment and earnings are happening because of global activity (The financial markets can influence this as they are in good shape with rates low.) Equities will rise or fall on earnings and fear and whatever else, but they won't necessarily fall when the Fed tapers to zero. Forward guidance will keep rates low for a considerable time - until such time they need to rise.
    Apr 20 06:31 AM | 2 Likes Like |Link to Comment
  • Is Inflation Next? [View article]
    "I can issue my own note in the form of a promise to pay in future, and my counterparty (last month, an auto dealer) can accept it because they know they can trade it to Chase for a deposit balance at Chase..."

    Jason, I guess the point I was making is if Chase buys your promissory note, you still owe Chase and do not receive any of the profits (directly) after Chase pays off it's operating expenses. You're still on the hook for the payments, but they are not made to yourself A consolidated Chase and Jason balance sheet.) If the Fed buys a government bond, the government (public sector) still owes the Fed. But it owes itself as the issuer of the nation's currency (of course, largely issued through he commercial banking system to which Chase belongs and the Fed does not.)

    In effect, then, when the Fed buys US securities, the public sector is holding it's own debt and the private sector holds cash deposits (either reserves assets/Fed liabilities in the case of a bank or as a bank liability/deposit asset in the case of a deposit holder.) Of course, both must be repaid, but US debt is paid to the currency issuing government and profits remitted to them while our debt is paid to the commercial banks (with some profits remitted on interest bearing savings or equity.)
    Apr 19 11:23 PM | 1 Like Like |Link to Comment
  • Is Inflation Next? [View article]
    In that case, I agree.

    "The position I am rejecting is that easy money is somehow a special government policy distortion or a peculiarity of the Fed or our monetary system, legally speaking."

    Also agreed.
    Apr 16 01:03 PM | 1 Like Like |Link to Comment
  • Low Inflation Taper Theory [View article]
    SouthGent, yea, it seems we're thinking along the same lines. I am of the opinion most refinancing is done. Excess reseves are a by product of ZIRP and QE.

    Higher spreads can mean more risk taking in the form of lending. Rates are low, one might suppose, because lending is a competitive thing. But, with demand low, rates should stay low or at least be commensurate with one's credit rating. The Fed could keep pressure on longer term rates helping new mortgage financing, maybe along with some fiscal policies. You mentioned HARP, I'm not familiar with it.

    I generally agree we're overextended on monetary policy. I didn't read that anywhere, it's just an opinion formed reading a lot of diverse material. I am retired living in EM, so it really hits home when the dollar plummets 30% sue to a dollar tsunami washing ashore. You kind of want to know why at the same time understanding the Fed is doing what it has to - or had to - and be supportive of a stronger US economy (and investment that goes with it.)
    Apr 16 12:58 PM | Likes Like |Link to Comment
  • Low Inflation Taper Theory [View article]
    "It is interesting that inflation has trended down with the launch of QE3 back in September 2012.

    My only explanation is that the money was not necessary in the real economy and landed mostly in bank reserves doing nothing other than gathering rays."

    Yea, that's a great point. My best explanation is our monetary policy dollars are not really being put to good use domestically. Equities are (or were) at all time highs and not terribly over valued if at all. US bond prices are still pretty good, yet the government failed to divert (borrow cheaply and spend) sufficient amounts of that Fed accommodation into the domestic economy. So, that leaves bank money creation at ZIRP to do the domestic heavy lifting. When that's sluggish, so is growth.

    A lot of excess dollars demanded, which was met very well by the Fed IMO, simply needed somewhere to go. That somewhere seemed to be emerging (and frontier) markets where dollars get treated better. It also means gold and, I assert, the euro area (with Spain's 5yr touching parity with the US 5yr. Go figure that one. Oh, yea, deflation, front running ECB QE, and returns on now safe EMU peripheral debt thanks to "whatever it takes" as opposed to fundamentals.)

    It's not that mal investment is taking place, really, so much as there seems to be a large imbalance of dollars, to some extent, intended for the domestic economy going elsewhere courtesy of a cheaply funded US dollar carry trade. Private capital is perfectly capable of driving that missing inflation and employment as any Fed policy, but we have to be able to attract it: government diverting it through borrowing, increased currency in circulation, or competitive returns (higher rates on lending improving credit availability.) It was striking credit availability spiked during the taper tantrum when rates kicked up.

    I personally feel the Fed has accommodated the US domestic economy about as much as it is going to, for the time being at least. It will taper asset purchases and rely on forward guidance, which seems to mean it will keep short term rates low instead of pumping more "free money" into the global economy. There should be plenty of dollars currently seeking risk (and spuring growth) abroad to jumpstart the US economy if we can get them to be reinvested at home (as unemployment falls and demand picks up. If...and longer term interest rates need to remain low, too, for a while as housing recovers.)

    In the absense of fiscal policy, QE seems to have been as throwing a plate of spaghetti against the wall leaving the US to lick the stain. Bernanke advised congress not to worry about the deficits so that consumption could increase in the US providing a fertile ground for investment thus attracting many of the very monetary policy dollars the Fed made available. Instead, we get low inflation (and a 0.2% increase in March, which is good.) Lately, Yellen basically insulted congress asking them to, "do no harm to the recovery." If you're not going to help, get out of the way, basically.

    So, yea, with demand for cash being met and the US recovery steady but sluggish, and fighting off fiscal drag and grid lock, I think the Fed feels the world has hogged it's share of spaghetti and ours too. It's time for the US to grab a plate, there's plenty to go around. And we might with the latest CPI and unemployment data seeming to shrug off the winter hybernation.
    Apr 16 09:58 AM | Likes Like |Link to Comment
  • Great Graphic - Case Study: San Jose Hiked Minimum Wage [View article]
    "When capital leaves it takes real jobs with it, leaving fake jobs (and localized jobs such as fast food cooks and plumbers) and an artificially high (and fake) living standard maintained by every trick politicians and economists can think of: welfare, deficient financing, artificially lowered interest rates, restrictions on the flow of jobs and money, currency regulations, unemployment payments, government jobs, defense spending, governments buying their own debt…and minimum wages."

    Be that as it may, it is (kinda) what we have to work with. So give a guy a liveable wage, hike your prices 4%, and carry on.
    Apr 16 08:45 AM | Likes Like |Link to Comment
  • Great Graphic - Case Study: San Jose Hiked Minimum Wage [View article]
    "If somebody is older than 65 why try to cure their cancer? They wont work anymore, they are useless."

    Cancer is a sell signal, apparently.
    Apr 16 08:43 AM | Likes Like |Link to Comment
  • How Much Will The Fed Taper, And What Will It Do To Offset The Effect? [View article]
    Hi Mr. Lloyd, thank you for replying.

    "If the US reduce the size of the public sector then the private sector will have more room to grow."

    Well, yea, the government might be a bit large, but I am not so sure it crowds out private sector growth as much as it can aid it. The government is, really, a giant consumer with deep pockets. In normal times, it bids for funding in the free market. During easing, the Fed makes plenty of cash available for everyone. The government may bid successfully for skilled labor causing a shortfall in the private sector.

    With what appears to be a huge outflow of dollars, the condition might be such that capital flows are imbalanced (rather than inefficient or mal invested.) In this case, the Fed may be somewhat overextended in terms of it's blunt domestic policy tool and is tapering because of it. That over accommodation was caused, at least in part, by fiscal drag Bernanke talked about with Yellen warning congress to, "do no harm to the recovery." I assert the Fed is done accommodating the financial system (and while might like to see a rising stock market and wealth effect, it probably does not target equities.)
    Apr 15 10:25 PM | Likes Like |Link to Comment
  • Is Inflation Next? [View article]
    I guess I don't see the Fed as a middle man, even though you're right, rather as part of the government's consolidated balance sheet.

    "If there is a high enough bid to place it, anyone can issue, and it has precisely the same effects."

    If I am following, yes, anyone can issue an IOU and trade it at interest or at a discount. But not just anyone can issue legal tender. Ya?

    When you say credit if free, do you mean the natural rate of interest, specifically the overnight rate, is zero?
    Apr 15 09:26 PM | 2 Likes Like |Link to Comment
  • Listening To The Canary [View article]
    "The Fed can only monetize US debt if the US Congress passes a spending bill which is signed into law by the US Prez."

    In other words, the Fed monetizes debt when congress authorizes spending. That's just wrong. When above the zero bound, it's actually impossible for the Fed to monetize (directly buying) government debt while defending it's funds rate. As soon as the government spent that money, the banking system would be in excess reserves and put downward pressure on the funds rate. To defend it, the Fed would have to sell that bond into the banking system, anyway.
    Apr 15 06:12 AM | Likes Like |Link to Comment
  • Deflation On The Mind [View article]
    "Overall I think they are way behind the US on recovering from the 2008 crisis."

    I would agree. Yea, forgot to account for deflation on returns. Good point.
    Apr 15 06:06 AM | 1 Like Like |Link to Comment
  • Is Inflation Next? [View article]
    "The government is issuing its own debts, and that is no more counterfeiting when they do it, than my signing a credit card slip is counterfeiting when I do it."

    Jason, sure, but that's not what I was driving at. You cannot issue dollars and ask your creditor to accept it while you hold your own debt. The Fed essentially does so by issuing dollars and holding the US government's own debt. The best we can do is make payments on our debt.
    Apr 15 06:05 AM | 1 Like Like |Link to Comment
  • Great Graphic - Case Study: San Jose Hiked Minimum Wage [View article]
    "If raising wages was this magical thing, why not just give everyone a million dollar minimum wage?" First, doing so is highly inflationary. Soon enough we'll all be carrying $1 million notes in our wallets where $1 notes used to be. Three dollars an hour might be inflationary, whis is a good thing, really. We need to get up to 2%. But, $1 million (tounge in cheek I presume) is too much of a good thing.
    Apr 14 10:40 PM | 1 Like Like |Link to Comment
  • Deflation On The Mind [View article]
    Great comments, Jason.

    On Spain, their 5 yr touched parity withthe US 5 yr recently. That's simply amazing. Now if they could only borrow enough to spend into the economy, but that's not the idea. Competitiveness and reform are, and that means deflation is the policy of choice.

    Seems to me, Draghi essentially made safe EMU debt that was not inherently safe with his "whatever it takes" comment. Importantly, even though OMT has been ruled a breach of treaty in Germany, investors still believe him.

    I suspect there is a lot of front running ahead of perceived ECB asset purchases. The trick is, the ECB can buy anything it wants, not necessarily EMU debt. There are good arguments against it buying EMU debt in a form of QE.
    Apr 14 10:31 PM | Likes Like |Link to Comment
  • Deflation On The Mind [View article]
    "I don't know what's happened to monetary policy since I studied it in graduate school. Back then we were always worried about mulitipliers and inflation. Now it seems like no matter how much money they print they're worried about deflation."

    Yea, there is no money multiplier. Banks do not receive a deposit of $1000 and lend $900, etc., into the economy (they lend it to other banks so reserves stay in the banking system.) Banks create loans from thin air. As long as inflation is anchored, the Fed will always make reserves available at the (discount) funds rate to support thin air money creation. Banks are not restrained by reserves, they are capital constrained and reserves simply grease the payments system. Reserves are also the necessary result of the Fed using the payments system to redeem bonds for cash. They neither help nor hinder bank lending, that's a function of capital constraints and creditworthiness.
    Apr 14 10:27 PM | 1 Like Like |Link to Comment