Econ help - can the Fed never raise rates?

[Easy_C]

When will there be "no choice"? Pensions and insurance markets are already suffering insolvency ... when do these finally, ultimately (final blow and destruction) fall is the actual question.

What's your over/under on the next huge bubble? 10 years? 15?

Difficult to tell.

Japan was able to keep their interest rates extremely low and pump their economy with QE for decades. However, Japan is a homogeneous society with high social cohesion, it's hard to say if the same thing could be done here for that long.

Your post implies it had a different effect. Those excessive QE policies were a big part of the cause of why the Japanese economy has been so depressed for so long.

As a longstanding traditional token of value, and form of money, not much is better than gold!

But I think you are complaining that gold is not fungible, which is correct. In fact, the recommended strategy is to hold it all the way to the next rebuilding cycle. It's not for trading during a crisis; it's for having any money at all when most people are broke.

Ready cash is the king's command during a default crisis. If you look at John Exter's liquidity pyramid, people owning the assets at the top of the inverted pyramid are trying to get out. They can only get out to the extent that someone has cash and is willing to part with it, even if they are trying to trade down the pyramid for something other than cash they still need some cash to complete the transaction (you don't trade CDOs for pork bellies or something like that...).

The problem as you are aware is that most "currency" doesn't exist in physical form. Your bank account does not consist of a pile of money in a vault; it's nothing but numbers on a ledger. When an individual, company, municipality, or any other debtor defaults on a loan, those numbers start disappearing!!

You've fell for one of the classic lines of bullshit out there. Gold is not "the only true money". It is a commodity investment just like any other. The true value of Gold is that is physically dense, which has historically allowed people to move large amounts of money discretely. That is somewhat more difficult to do nowadays thanks to government cracking down on Gold dealers....you can't pay in cash in Paris.

It is not even remotely true that Gold has intrinsic value and will always be accepted. There are numerous examples to the contrary. For example, there was a period of decades in Japan where bags of rice were the currency and no precious metal coins were minted or traded.

The definition of money is pretty simple: It is whatever people will accept as a measure of value. If that sounds vague that's because it is. You can find examples of almost anything being "money".

 

[Kid Twist]

^

Either way, the piper has to be paid.

The politicians seemingly will never allow for pain to create new, stronger fundamentals.

They like the long slow decline so as to never show anyone it was their fault or give a memorable, tangible reason to blame.

Can Trump restructure the debt somehow? This seems to be the only hope. And of course it requires some pain, as well.

 

[Different T]

Those excessive QE policies were a big part of the cause of why the Japanese economy has been so depressed for so long.

What are thinking of when you call the Japanese economy "depressed."

Do they have really high unemployment? High inflation? Rising defaults? Something else?

Do you think Japan is lagging the rest of the developed world in terms of modernization?

What comes to mind when you say they have a "depressed" economy?

 

[Kid Twist]

Let's say the central authorities and Fed say "Fuck pension and health insurance", which appears to be exactly what they are doing.

Why does that even matter? Won't IL just go broke on pensions and people will have to just "figure it out" ... that seems like a preferable option for Wall St. and Washington DC, which is probably why they are doing it.

 

[Different T]

Let's say the central authorities and Fed say "Fuck pension and health insurance", which appears to be exactly what they are doing.

What assumptions are you making with this comment?

Do you think TARP, QE, and ZIRP made things worse for existing pensions and insurers as compared to your "allow for pain to create new, stronger fundamentals."

Most posts in here can be summed up as:

NwfpBVmrC2g

 

[thoughtgypsy]

What are thinking of when you call the Japanese economy "depressed."

Do they have really high unemployment? High inflation? Rising defaults? Something else?

Do you think Japan is lagging the rest of the developed world in terms of modernization?

What comes to mind when you say they have a "depressed" economy?

Perhaps he meant overinflated asset values and a higher cost of living relative to what it would have been without central bank intervention.

Most posts in here can be summed up as:

NwfpBVmrC2g

Yes, we get your pre-emptive snarkiness. How about instead of picking apart every comment, you provide counter examples or some kind of useful information to enlighten us?

 

[Different T]

Perhaps he meant overinflated asset values and a higher cost of living relative to what it would have been without central bank intervention.

Perhaps, but that seems unlikely to me. More likely he's repeating anti-CB talking points without any referents.

So let's look at your statement. Are you saying the Japanese have had "overinflated asset values" for over two decades? That's quite strange. Japanese households' savings rates have been declining while their private sector savings rates are going up (primarily meaning corporate savings are increasing due to not re-investing). While you may wish to say this is due to CB intervention; Japan is, AFAIK, probably the most advanced and automated nation on the planet. It seems overly confident to state that CB intervention has worsened the lives of your average middle-income Japanese worker when the case could be made for the exact opposite being more likely. That monetary and fiscal policy have, to some degree, increased the real standard of living of your average Japanese worker.

How about instead of picking apart every comment, you provide counter examples or some kind of useful information to enlighten us?

Do you have a question? If you try to answer the questions asked to those other commenters, THAT would help you.

 

[Hades]

Hide your money in gold, possibly cash, or investments.

Brad Pitt from the Big Short is the guy to pay attention to. Learn from him. We will eventually have a big financial apocalypse, of the sort that you read about in horror books about the Holodomor.

There is a 100% chance that the Fed will eventually experiment with negative interest rates, and only a few people (RVFers, businessmen) will give a fuck.

 

[Kid Twist]

Let's say the central authorities and Fed say "Fuck pension and health insurance", which appears to be exactly what they are doing.

What assumptions are you making with this comment?

Do you think TARP, QE, and ZIRP made things worse for existing pensions and insurers as compared to your "allow for pain to create new, stronger fundamentals."

Most posts in here can be summed up as:

NwfpBVmrC2g

You misunderstand my post. They are clearly saying "Yes, we're making it worse for pensions and health insurance" followed by "So what?"

I was asking for an explanation of why that matters, because they apparently don't think it does. Just let IL retirees, for example, figure it out. Likewise the people that need "healthcare"

 

[chakalaka]

Perhaps he meant overinflated asset values and a higher cost of living relative to what it would have been without central bank intervention.

Perhaps, but that seems unlikely to me. More likely he's repeating anti-CB talking points without any referents.

So let's look at your statement. Are you saying the Japanese have had "overinflated asset values" for over two decades? That's quite strange. Japanese households' savings rates have been declining while their private sector savings rates are going up (primarily meaning corporate savings are increasing due to not re-investing). While you may wish to say this is due to CB intervention; Japan is, AFAIK, probably the most advanced and automated nation on the planet. It seems overly confident to state that CB intervention has worsened the lives of your average middle-income Japanese worker when the case could be made for the exact opposite being more likely. That monetary and fiscal policy have, to some degree, increased the real standard of living of your average Japanese worker.

How about instead of picking apart every comment, you provide counter examples or some kind of useful information to enlighten us?

Do you have a question? If you try to answer the questions asked to those other commenters, THAT would help you.

That´s why they call it the lost decade...

https://en.wikipedia.org/wiki/Lost_Decade_(Japan)

The economist calls it the japanese tragedy.

http://www.economist.com/blogs/freeexchange/2012/08/lost-decades

 

[chakalaka]

Stock market seem like a balloon getting inflated by central banks. Everytime it gets negative. They pump new air in it. FED, BCE, BOE and BOJ are decisive in keeping the balloon up in the air.

Latest pump was made yesterday by the BOE.

The Bank of England cut its benchmark interest rate to the lowest in its 322-year history
http://www.wsj.com/articles/bank-of-england-cuts-key-interest-rate-to-new-low-1470309155

At this moment central banks are the decisive fundamental. The only thing which can stop this ponzi is inflation. As long as economy is shit. Central banks will buy corporate bonds. With the money from the bonds selling. Companies do buybacks. And the wheel keeps turning. Supposedly the music would stop the moment companies are not be able to service the debt. But central banks can keep the music playing. By refinancing the debt.

This is not a bad scheme. Inflation could stop this. But if there´s inflation probably it means economy is picking up. Which is good.

One problem will be if the gap between the real economy and the artificial one widens to an unbearable point. And you can have massive unemployment and historical wall street highs at the same time.

The problem isn´t central banks cutting rates or QE. As a temporary solution it´s viable. But this measures only buys time. Which is good. It doesn´t fix shit. Debt is not a profit multiplier.

If FED never raises interest rates. It will mean you need debt to fuel economy. But debt is artificial. It doesn´t create wealth neither is a profit multiplier.

For FED not raise rates. It means companies cannot stand alone by themselves and need the crutch of debt. For this to happen the economy must be shit. Reason why companies need massive cheap debt instead of profits.

FED will have to raise rates, because otherwise this would mean economy would never pick up.

 

[Kid Twist]

Why will the economy pick up if they raise rates?

 

[chakalaka]

The economy will not pick up if they raise rates. They will raise rates because the economy picks up. Raising rates is between others, a consequence of an healthier economy. Or to stop inflation. Companies no longer need cheap money and debt to sustain themselves.

The economy picks up with lower taxes, less bureaucracy and needed public infrastructure.

Before a fed meeting check the reasons why analysts speculatie the rate will go up or down. It's economy. Eonomy is doing well there's no need to cut rates. A low rate with a strong economy would probably lead to massive inflation.

Sometimes I speculate on this. For central banks the shittier the economy more control they have. They have companies by the balls. Through they're bonds. Since companies are dependent from central banks to continue surviving.

If companies rely in true demand. Me you buying food, clothes, whatever then there's no direct. control.

Everything is based on law of demand. http://www.investopedia.com/terms/l/lawofdemand.asp

The fact interest rates are incredibly low are a symptom of an sick economy. Stock markets are reaching highest because companies are going into cheap debt to buy their own shares. In fact american companies can finance themselves in europe. The ECB can buy american bonds.

If a stock goes down the company can sell bonds to a central bank. And with that money buy it's own share. Making the stock go up

I believe the stock market is rigged but that's not a bad thing if you understand how the rigging is being done. .

 

[chakalaka]

Nassim Taleb:

"The fact that the world, as a result of quantitative easing, has seen an asset inflation that benefited the uber-rich, and that nothing has been cured. One cannot cure debt with debt, by transferring from private to public sectors. The markets will ultimately crash again, although this time it will hurt a lot more people."

https://finance.yahoo.com/news/nassim-taleb-tail-risk-hedging-000000014.html

"The Federal Reserve Survey of Consumer Finance found that only 48.8 percent of Americans held stock either directly or indirectly in 2012, the latest period measured. That's the lowest level since 1995, when 40.5 percent of Americans held some form of stock. (Indirect ownership of stock includes stocks held in mutual funds, 401-K plans and other investment vehicles.)"

http://www.cnbc.com/2014/09/08/the-stock-gap-american-stock-holdings-at-18-year-low.html

The companies sell bonds. With the proceedings from bonds they buy their shares. Instead of investing in the company. Why don´t managers invest in companies? Because there would be no return since real economy is shit. It would be like throwing money into a pit. Also they are evaluated by the stock quotation. In this era of instant gratification everything must have immediate effect.

"New Tool for Central Banks: Buying Corporate Bonds
Bank of England to purchase up to £10 billion in corporate loans"

http://www.wsj.com/articles/new-tool-for-central-banks-buying-corporate-bonds-1470350276

"HSBC executives say they plan to do two major share buybacks over the next year and a half, as the bank posts a 45 per cent drop in pre-tax profits year-on-year."

http://www.ft.com/fastft/2016/08/03/hsbc-plans-two-major-share-buybacks-after-profits-drop/

And how will they finance their buying their own stock:

"Sharply lower borrowing costs has also encouraged new issuance with BMW, BNP Paribas and HSBC all tapping the sterling market on Monday with debt sales."

http://www.ft.com/cms/s/0/b836dddc-5d3e-11e6-bb77-a121aa8abd95.html#axzz4Gq6RlZg7

The stock market will crash when central banks decide so. By raising rates. In 2008 the crash was due to raising rates to 5,25% from 1% in two years, without giving time for the economy to adapt. The rates increase should have been gradual. Not a 4% rate hike in two years. But this was probably the trade he made for climbing another stair in the elite hierarchy.

And the same will happen again. This time with corporate bonds. The moment central banks decide there will be no more cheap loans to companies by raising rates. They will crash big. And this time. It´s the entire economy. Not just one specific sector.

A while ago I was looking into how to short corporate bonds and CDS.

It´s not by lowering central banks rates that you can revive an economy. It´s by public infrastrucutre, deregulation for small/medium businesses and lower taxes. Regulation is nothing more than shooting everything that moves. And protecting big companies who can afford a department to deal with regulation. Anyway I digress.

 

[chakalaka]

Treasury wants the ruling class/ownership class/management class to invest and expand.

The capitalists don't see too many investments that will garner them return. Everyone is Warren Buffett now.

So the Fed only has the one button, and now they can't make a move. Can't spur investment if the people who are the best at it don't want to.

If they raise rates, they're hurting the folks who are trying to do something.

WIA

"The other side of Warren Buffett
Don’t Buff it up

An investing hero is not a model for how to reform America’s economy"

http://www.economist.com/news/busin...-reform-americas-economy-donu2019t-buff-it-up

No wonder is pro-Hillary.

 

[Max Henrich]

It seems they're throwing everything and the kitchen sink at it now. I thought in 2014 that a crash is imminent, but it makes sense that they're really trying everything now. Because a collapse would lead to events comparable to the French Revolution.

 

[chakalaka]

New Zealand's Central Bank Signals More Rate Cuts

http://fortune.com/2016/08/23/new-zealand-central-bank-interest-rates/

 

[chakalaka]

“Earnings don’t move the overall market; it’s the Federal Reserve Board… focus on the central banks and focus on the movement of liquidity… most people in the market are looking for earnings and conventional measures. It’s liquidity that moves markets.”

https://www.thefelderreport.com/201...-majority-his-success-to-just-this-one-thing/

 

[Hell_Is_Like_Newark]

So what happens now?

Trump's economic plan is very similar to the House Republican plans. Generally, I think it is positive to institute growth, but it doesn't address federal over-spending.

The latter is going to be an issue. Right now, because the Fed has kept rates so low, the interest burden is pretty light (given the VERY high levels of debt). Though this to me seems like a teaser rate on a McMansion mortgage; all is well and good until the rates go up.

If interest rate were to rise (say where they were in the later '80s), debt service could eventually eat up over 40% of the federal budget. You could also see a crash in bonds as many long term bonds would be locked into rates that won't even keep up with inflation.

With the Fed's money printing, I think we are backed economically into a corner. The Fed will raise rates if growth picks up, which in turn could lead into an explosion of more debt as the Treasury will have to borrow to service the existing debt.

Without massive cuts in Federal spending (on the order what was done during the Harding administration), I don't see how the Fed unwinds this mountain of debt (much of it on its own balance sheet) without causing severe economic shocks.