Last April, I predicted that the Fed will start cutting rates and returning to QE. A 25 or 50 basis point cut next week is now all but guaranteed. Powell has blamed the global economy, uncertainty and a lack of inflation for the need of a return to easing despite a good economy.
These statements betray his idiocy - or more likely, his disingenuousness. There is always uncertainty in good times and bad. Inflation is already well above the 2% target, which in itself flies in the face of the mandate of price stability. The real issue is the domestic US economy and US assets. Without the fed committing to easing, the stock market would be in deep, deep doo-doo. And as for the global economy, it is the Russel 2000, the most domestic-focused index that is doing the worst.
The US economy is simply not doing that great. The whole Obama recovery and the Trump boom have been a long period of lacklustre growth made to look better by high asset prices, a low headline unemployment number and low inflation. Trump has made a lot of hay about Obama never achieving an annual GDP growth rate of over 3%. Thing is, neither has he (2017: 2.2%, 2018: 2.9%). All of the trends, the abysmal workforce participation rate, movement from full-time to part-time work and movement out of high-paying sectors like manufacturing into low paying service-sector jobs have joined Trump's and Obama's economy together in a way that makes the transition from one to the other imperceptible on a graph. The heavily modified inflation statistics have also hidden a lot of inflation that would have revealed real GDP growth to be flat or negative this whole time.
If the above sounds like a conspiracy theory, then ask yourself: why does such a good economy need so much artificial stimulus? Why cut rates if things are so good? Why are voters so angry? The answer is simple, the economy stinks and it is rapidly rolling over and heading for a crash. The artificial boom, the bubble, (the third in my lifetime!) is bursting. We will go from a 25-50 basis point cut to zero faster than you can say "Alan Greenspan". QE will be back very soon.
So as this part of my prediction looks like it is coming true, what about the rest and what happens after that? Well, it is hard to tell how quickly all the following will happen and what might crop up to change course, however; The actions of by the Fed might keep the stock market going for a little while, but it will not be able to halt the oncoming recession. As the crisis unfolds it will increasingly lose control over the long end of interest rates. QE will then be the only tool left and the Fed will have to buy more and more types of paper to prop up the economy.
Eventually, if this policy is pursued long enough, it will spell the end of the private US debt market. Inflation will spiral out of control and a currency and sovereign debt crisis will hit the US. Under these conditions, the world will dump the Dollar standard and return to the gold standard.
Cochin, July 16th 2019
TLDR: The Fed just proved that it never had an exit strategy
These statements betray his idiocy - or more likely, his disingenuousness. There is always uncertainty in good times and bad. Inflation is already well above the 2% target, which in itself flies in the face of the mandate of price stability. The real issue is the domestic US economy and US assets. Without the fed committing to easing, the stock market would be in deep, deep doo-doo. And as for the global economy, it is the Russel 2000, the most domestic-focused index that is doing the worst.
The US economy is simply not doing that great. The whole Obama recovery and the Trump boom have been a long period of lacklustre growth made to look better by high asset prices, a low headline unemployment number and low inflation. Trump has made a lot of hay about Obama never achieving an annual GDP growth rate of over 3%. Thing is, neither has he (2017: 2.2%, 2018: 2.9%). All of the trends, the abysmal workforce participation rate, movement from full-time to part-time work and movement out of high-paying sectors like manufacturing into low paying service-sector jobs have joined Trump's and Obama's economy together in a way that makes the transition from one to the other imperceptible on a graph. The heavily modified inflation statistics have also hidden a lot of inflation that would have revealed real GDP growth to be flat or negative this whole time.
If the above sounds like a conspiracy theory, then ask yourself: why does such a good economy need so much artificial stimulus? Why cut rates if things are so good? Why are voters so angry? The answer is simple, the economy stinks and it is rapidly rolling over and heading for a crash. The artificial boom, the bubble, (the third in my lifetime!) is bursting. We will go from a 25-50 basis point cut to zero faster than you can say "Alan Greenspan". QE will be back very soon.
So as this part of my prediction looks like it is coming true, what about the rest and what happens after that? Well, it is hard to tell how quickly all the following will happen and what might crop up to change course, however; The actions of by the Fed might keep the stock market going for a little while, but it will not be able to halt the oncoming recession. As the crisis unfolds it will increasingly lose control over the long end of interest rates. QE will then be the only tool left and the Fed will have to buy more and more types of paper to prop up the economy.
Eventually, if this policy is pursued long enough, it will spell the end of the private US debt market. Inflation will spiral out of control and a currency and sovereign debt crisis will hit the US. Under these conditions, the world will dump the Dollar standard and return to the gold standard.
Cochin, July 16th 2019
TLDR: The Fed just proved that it never had an exit strategy
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