Last month the Federal Government spent $589B and ran a $314B deficit. To pay for the $314B they didn't have, they said they borrowed $261B from the public and drained their savings account by $73B. That doesn't quite add up but that doesn't surprise anyone. What's $34B between friends? When the Fed's savings account gets low, they have to come [...]
The Federal Reserve left interest rates at 0 after their 2 day policy meeting this week. Less concerning, they lowered the forecast for future rates. We have red and green street lights. Why? Because society finds it beneficial that people using our streets aren't speeding through an intersection from both directions at the same time. We have laws against stealing. Why? [...]
For the past 7 years we've listened to the so-called "experts" bemoan the "extraordinary" Fed policies. They called them dangerous, untested, experimental. Now all of a sudden there is a change of heart? Don't raise the rate?? It is too risky?? It would be irresponsible and dangerous?? The markets and the economy couldn't possibly bear an interest rate above 1/8 of a percent?? The [...]
It is easy to get carried away with modern finance, diving into the immense flourishing of finance that has taken place. Conceptions have become far more complex, sometimes unnecessarily so, leading to impairments in distinguishing forest and trees. In credit markets, we focus narrowly on spreads and curves because that is where the “action” seemingly takes place. That leaves observation [...]
As is usual at this time of year, the Chairman of the Federal Reserve Board and FOMC will gain inordinate attention due to the upcoming Jackson Hole assembly. Ben Bernanke in his stint made use of the PR to first introduce his ideas about coming intervention and manipulation. Janet Yellen may or may not do the same, but she will [...]
The FOMC policy statement confirms without much doubt that there has been a major shift in conditions and outlook. To reiterate in what cannot be overstated, the purpose of implementing QE was to create economic conditions that conformed to the historical understanding of economic growth. If not so much 1995, Bernanke’s FOMC wanted to return to at least 2005 and [...]
When home sales rose M/M (slightly) in April for the first time in 2014, the NAR theorized it as the turnaround signal. Their reasoning for it was strange in the context of basic, intuitive economics (meaning non-textbook). Rising prices on too few available homes for sale was supposed to signal more construction, as this shortage narrative was perhaps the only [...]
In looking at policy expectations, I continue to believe the shift in the Fed is both dramatic and durable. On the one hand, QE without Bernanke is toast, as the growing consensus appears to be that the economy is running here and now at or above “potential” (explaining in an orthodox manner why the unemployment rate is falling so precipitously [...]
There are subtle shifts underway in policy expectations and perceptions. Some of it is related to the change from Bernanke to Yellen, as there seems to be a different philosophy regarding mostly QE. Chairman Bernanke was nearly unequivocal in his belief that monetary policy both should and could return the economy to a state more closely aligned with historical experience [...]
I speculated in May last year that the introduction of the taper concept was in large part due to what Jeremy Stein articulated in February 2013, namely the idea that certain “markets” were becoming overheated in the “reach for yield.” In essence, it amounted to an attempt to “talk down” assets, chief among them the raging price appreciation once again [...]
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