Fed Flip Flop Moving At Light Speed
Fed Flip Flop Moving At Light Speed
Truly incredible how quickly the Federal Reserve can do a complete 180 degrees reversal of what it said would be a very systemic unwinding of its emergency actions. It was only a eight months ago the Fed said the economy was well on its was to full recovery and that it no longer needed the crutch of emergency measures. Earlier they suggested that they could unwind QE (perform quantitative tightening) without they disrupting the economy.
They stated it was going to be "like watching paint dry". Some silly boring activity not worthy any concern. It was all on autopilot. Things were great and they were going to stay that way. There was never going to be another financial crisis in our lifetimes. In fact in December they were discussing whether to raise rates two to three times in the coming year.
That is when reality struck and my how things have changed.
A few months later and the Fed is now in full retreat. The unwinding of the Quantitative Easing program is "on hold" (ie: cancelled) and in effect have admitted the previous rounds of QE are not going to be unwound and were in fact debt monetization. The talk of "patience" has been removed from the Fed minutes and now rate cuts are on the way. The alarm bells are ringing.
As discussed in previous posts it was extremely unlikely the Fed was ever going to be able to unwind QE, for various reasons, mostly due to the fact that rising interest rates would prick the massive bubble created by the US Fed through its manipulation of interest rates and removal of price discovery in the markets. The Fed completely lacks awareness of Market Economics, because it doesn't fit their very limited models.
There is now a mountain of malinvestment overhanging the economy. Corporate America is over burdened with massive debt with no way to repay it. Over half of corporate debt in the US is rated junk or near junk status.
Government is drowning in debt with not even the slightest concern from elected officials. Many consumers are paralyzed in massive debt. Pension plans have been left with no choice but to load up on low quality bonds in an attempt to find return on investment to meet their pension liabilities. The Fed has painted themselves into a very dark corner with no hopes of being able to get out of it without dire consequence.
The US equity market is built on a massive debt bubble, which has been fueled us corporate stock buybacks, through issuing debt. the correlation between stock buybacks and the increase in corporate debt has been inline through the equity boom since the Fed pushed rates down to emergency low levels and kept them their for over 8 years.
As soon as the Fed relented in the least and allowed the rates to rise slightly and allowed markets to face the possibility of normalizing rates and the unwanted taste of money actually costing money to borrow things started turning downwards in a hurry. Now corporations are carrying massive levels of debt, as a result of the Fed's easy money policy and many if most of the corporations are not prepared for their debt loads costing more than inflation. In fact most corporations are not prepared for interest rates above one percent.
The big minds at the Fed have recently come to the realization that the massive debt burden might not be the best occurrence in the economy, but have completely ignored the risk all along the way. It is very disappointing that the Fed has only recently realized such risk, but years of ignoring economic reality has certainly hampered their ability to manage the US economy. Of course they refuse to admit to this day that this risk has any serious risk to the economy. They want to ignore it, because it doesn't fit into their very limited models. Keynesian economics has failed.
The Fed has been directing the Titanic with their eyes shut and have only notice the iceberg problem once they feel the shaking of the ship. Needless to say these people have not helped managed the economy's stability. Ignoring the risk factors associated with fueling the economy on a debt fueled bubbles is beyond alarming.
The next shoe to drop will be the lowing of rates back down towards zero percent and then the initiation of a new round of Quantitative Easing (Monetizing Debt and Debasing Currency) can only be around the corner. The destruction of the fiat monetary system is drawing near with the actions of the Federal Reserve. In short the Federal Reserve is completely clueless and any people who believe their charade are going to pay a very steep price.
Truly incredible how quickly the Federal Reserve can do a complete 180 degrees reversal of what it said would be a very systemic unwinding of its emergency actions. It was only a eight months ago the Fed said the economy was well on its was to full recovery and that it no longer needed the crutch of emergency measures. Earlier they suggested that they could unwind QE (perform quantitative tightening) without they disrupting the economy.
They stated it was going to be "like watching paint dry". Some silly boring activity not worthy any concern. It was all on autopilot. Things were great and they were going to stay that way. There was never going to be another financial crisis in our lifetimes. In fact in December they were discussing whether to raise rates two to three times in the coming year.
That is when reality struck and my how things have changed.
A few months later and the Fed is now in full retreat. The unwinding of the Quantitative Easing program is "on hold" (ie: cancelled) and in effect have admitted the previous rounds of QE are not going to be unwound and were in fact debt monetization. The talk of "patience" has been removed from the Fed minutes and now rate cuts are on the way. The alarm bells are ringing.
As discussed in previous posts it was extremely unlikely the Fed was ever going to be able to unwind QE, for various reasons, mostly due to the fact that rising interest rates would prick the massive bubble created by the US Fed through its manipulation of interest rates and removal of price discovery in the markets. The Fed completely lacks awareness of Market Economics, because it doesn't fit their very limited models.
There is now a mountain of malinvestment overhanging the economy. Corporate America is over burdened with massive debt with no way to repay it. Over half of corporate debt in the US is rated junk or near junk status.
Government is drowning in debt with not even the slightest concern from elected officials. Many consumers are paralyzed in massive debt. Pension plans have been left with no choice but to load up on low quality bonds in an attempt to find return on investment to meet their pension liabilities. The Fed has painted themselves into a very dark corner with no hopes of being able to get out of it without dire consequence.
The US equity market is built on a massive debt bubble, which has been fueled us corporate stock buybacks, through issuing debt. the correlation between stock buybacks and the increase in corporate debt has been inline through the equity boom since the Fed pushed rates down to emergency low levels and kept them their for over 8 years.
As soon as the Fed relented in the least and allowed the rates to rise slightly and allowed markets to face the possibility of normalizing rates and the unwanted taste of money actually costing money to borrow things started turning downwards in a hurry. Now corporations are carrying massive levels of debt, as a result of the Fed's easy money policy and many if most of the corporations are not prepared for their debt loads costing more than inflation. In fact most corporations are not prepared for interest rates above one percent.
The big minds at the Fed have recently come to the realization that the massive debt burden might not be the best occurrence in the economy, but have completely ignored the risk all along the way. It is very disappointing that the Fed has only recently realized such risk, but years of ignoring economic reality has certainly hampered their ability to manage the US economy. Of course they refuse to admit to this day that this risk has any serious risk to the economy. They want to ignore it, because it doesn't fit into their very limited models. Keynesian economics has failed.
The Fed has been directing the Titanic with their eyes shut and have only notice the iceberg problem once they feel the shaking of the ship. Needless to say these people have not helped managed the economy's stability. Ignoring the risk factors associated with fueling the economy on a debt fueled bubbles is beyond alarming.
The next shoe to drop will be the lowing of rates back down towards zero percent and then the initiation of a new round of Quantitative Easing (Monetizing Debt and Debasing Currency) can only be around the corner. The destruction of the fiat monetary system is drawing near with the actions of the Federal Reserve. In short the Federal Reserve is completely clueless and any people who believe their charade are going to pay a very steep price.
