7/25/2012 6:40 PM ET|
It's God vs. the Federal Reserve
With the economy in need of all the stimulus it can get, the central bank is being thwarted by acts of God and wars over religion, which threaten to revive inflation.
Since early June, stocks and the economy have settled into a holding pattern. What happens next depends, in large part, on whether the Federal Reserve can continue the recent string of interventions by central banks around the world.
Whether it does depends on acts of God, or possibly, acts of extremism and violence made in the name of religion. Will the worst drought in nearly 60 years abate? Or will it send food prices soaring? Will power plays in the Middle East, fueled by religious hatred and regional ambition, send energy prices higher?
All of these issues hit at the Fed's most vulnerable point: the potential for consumer-crushing inflation.
If something nasty happens soon, it will keep the Fed on hold and leave the economy listless. If prices start rising after the Fed announces another round of stimulus, not only would such increases cancel the benefit of more cheap money, but they could also fuel speculators and make everything much worse, as rising prices did in 2011.
No other lifeline
You see, we need to bolster the economy as much as possible heading into the end of the year. It is then that the "fiscal cliff" of tax hikes and spending cuts worth -- some 5% of the gross domestic product, enough to start another recession -- looms. Wall Street analysts are busily marking down their growth estimates. From near 2.5% in May, the consensus now sees 2013 growth clocking in at a 1.5% annual rate.
That's dangerously close to the economy's stall speed. And it isn't fast enough to cut the unemployment rate.
The evidence of a global slowdown is plain. European manufacturing activity has plunged to a three-year low. Job growth has been halting here at home. And in Asia, the rise of the middle class, with its once-insatiable appetite for the West's finer things, has stalled: According to Morgan Stanley analysts touring Hong Kong, there has been a marked slowdown in consumer spending, particularly for high-end global brands.
The uncertainty and fear driving all this -- be it the potential for a eurozone breakup or the U.S. fiscal cliff -- is hitting the corporate sector, and therefore stocks, as the real economy slows. The chart below shows that the global ISM manufacturing activity index and earnings revisions have fallen to levels not seen since late 2007, as recession loomed.
In this context, and as summertime trading volumes dwindle, equities have been gapping and bouncing like grasshoppers but not making steady movements up or down. Economic data have been poor but not shockingly terrible, and there are signs of hope, including a slight bump in incomes, lower fuel prices and stabilization in the housing market -- points of light I discussed in a recent column titled "A new US recession? Not yet."
Investors just can't decide if things are going to get better or worse. For now, they are stuck in the middle, with a slightly bearish bias. According to Investors Intelligence, newsletter writers are refusing to get bullish, or bearish, on a scale that's been seen only twice since 1970. The American Association of Individual Investors notes that bullish sentiment has been below average for 15 straight weeks. That hasn't happened since 1993.
The will to act
Fed policymakers are clearly preparing to do more. The Fed's next policy announcement is next week, on Aug. 1. Fed governor Sarah Raskin said she expects to talk about a third round of outright bond buying, or "QE3," at that meeting. Fed mouthpiece Jon Hilsenrath of The Wall Street Journal wrote in an article published Tuesday that officials "impatient with the economy's sluggish growth and high unemployment, are moving closer to taking new steps to spur activity and hiring."
Options under discussion appear to include a QE3 focused on mortgage securities, extending the Fed's near-0% interest rate commitment beyond 2014 or pushing the interest rate it pays banks that park funds at the Fed's vault down to 0% (from 0.25% now on some $1.5 trillion in excess reserves) -- mimicking a recent move by the European Central Bank.
Last month, the central bank extended its $400 billion "Operation Twist" initiative - whereby it sells its short-term Treasury bonds and buys long-term Treasury bonds as it tries to lower long-term interest rates -- by $267 billion, keeping the operation running through the end of the year.
Minutes from the Fed's June meeting show that a "few members express(ed) the view that further policy stimulus likely would be necessary," while "several others" thought additional action could be warranted if the economy continued to cool.
Well, it has cooled. Inflation has dropped below the Fed's target, with consumer price inflation falling from nearly 4% last September to just 1.7% now.
Moreover, the credit channel remains impaired. You can see this in the way money velocity -- a measure of how quickly dollars move through the financial system -- continues to collapse. More needs to be done here. Deflation or low inflation, combined with credit scarcity, is a recipe for disaster, given the dynamics of Japanese-style debt deleveraging, or balance-sheet recessions like the one we're in now.
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Financially ignorant citizens, corrupt and/or ineffective politicians, unethical, greedy business leaders. The Fed can't fix that.
I think the odds favor God. It's like betting against the house.
Don't fall for the gimmicks of having to have a house that is 3X bigger than you really need. Don't fall for the gimmicks of having to have a car that is nicer than your neighbors. Don’t fall for the gimmicks of having to have a Starbucks coffee every single day. Those same principals are true for many things that the people of Earth worship way too much. And, this is what is causing your problems: Greedy, Gluttonous Monsters that want to devour the Earth and leave you in a landfill of waste and debt...
"And I sincerely believe, with you, that banking establishments are more dangerous than standing armies; and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale." -Jefferson in a letter to John Taylor in 1816
The Federal Reserve is not a part of our Government yet it is allowed to make dumb decisions based on greed to "adjust" the American economy. Since the Federal reserves establishment back in the early 1900's the economy of this country has gone down the crapper. The Feds First major swindle: Great Depression maybe?
More stimulus - what a joke - it will only create more inflation, take buying power away from the consumer and increase unemployment. However, the bankers will love it. They will borrow money from the fed at 0% interest and loan it to the treasury for 1 to 1.5 % and make money on printed money and the America people will get screwed.
Our leadership in America is the enemy. Obama, the fed and congress. If we vote them all out in November, we will still have the same problems. Revolution is the only answer.
So we should be angry at God for not permitting the idiotic notion that "There's never too much of a good thing" to stand? Because seriously that's how Federal Reserve plays their game. They don't seem to believe that Constant Growth is impossible to keep. You can't grow forever! I mean, Gosh darn it!Name one (other than the Universe) just ONE thing that grows forever. Name it. So why in the world would you think an economy, based on a dollar that is backed by nothing (thank you so much Fed), would just magically defy logic, common sense and some basic laws of physics?
The chances of all these scenarios will happen is unlikely. The QE2 is a wasted effort. If by chance it is introduced* any positive result would take at least 18 months to produce any fruit.
Americas first responsibility is to save itself. Hopefully we won’t be whitewashed into thinking our obligation is worldwide. For some strange reason Politian’s honestly think it takes skill to spend other peoples money. In 2010 we spent over 60 Billion in foreign aid. Reduce it by 50 percent. We didn’t take these people to raise. Lets take care of our own citizens.
But perhaps God's judgement is just, for the nation that says in their heart: "In Bernanke We Trust."
They are also fighting the laws of economic math. It's called inflation. There is a point where no amount of tricky dick accounting will stem the velocity of the freshly printed monopoly money from entering the system in todo. I literally remember helicopter Ben telling Congress all his printing is not causing inflation because he's making sure everyone else (namely the common foke) don't get any of it. Their entire scheme has been to keep velocity low. When that dam breaks you'll see prices spike and buying power decrease more for everyone while asset holders take the rising tide to greater income inequity.
The fed knows they have already flushed way too much money into the system. They have the stock market as a junkie going 'more more more' for the next little 'fix'. But it could wreck everything and they know it.
I was taught to always believe in God, and
I do. For a very long time I did not believe in conspiracy theory, now I do.
"When does acts of the man become the acts of God? Global Warming, i.e.climate change, is caused by corporate greed which leads directly to the globalization policies of the real owners of the U.S., the Federal Reserve."
AND... how can you refute the existence of a New World Order. 1999 marked the start of this attack to possess all the wealth in the world. Phil Gramm co-authored the Gramm Leach Bliley Act and got it slipped into another piece of legislation to pass it. It legalized collusion in the financial sector and fully de-regulated all institutions. Gramm was immediately hired by UBS Bank after his term expired. UBS was a major player in the LIBOR manipulation. This has nothing to do with God, it has to do with weak minded men, greed and the need for a world filled with People to come together and eliminate those who cannot live among us, they aspire to ivory towers.
Close the banks. Save the world.
Ever heard of Murphy's Law, "Whatever can go wrong, will go wrong at the worst possible moment." Although nearly all the factors in this scenario have been created by ignorance or incompetence.
Starting with food, there is no real food shortage. There is an artifical food shortage created by the United States and it's suspension of the laws of physics through the subsidies for corn ethanol. With nearly 70 of the US corn crop being turned into fuel (is a net energy loser or at best breaks even) this has created huge disruptions in the food markets both in the US and overseas. To put it into context, this is the same as removing the entire Argentina pampas (best farmground in the world- like the midwest) from production but still continuing to see all the inputs (fertilizer, seed, labor, equipment) used.
On the markets the Fed and governments around the world didn't avoid the realities of 2008 rather they have just postponed the due date. These chickens are coming home to roost, there is no avoiding it. There is no suspending reality forever, sooner or later the market will sort the winners from the losers no matter how the government or Fed feels about it.
In short until there is some blood, sweat, tears, and pain this thing is no where near turning around. The notion we can spend our way out of a problem that was created by spending is absurd. They are going to let inflation run and wipe all these debts away. It's so criminal that we all just have trouble really thinking they would intentionally do something like that. Just wait until people no longer have any trouble understanding what is really happening.
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[BRIEFING.COM] The S&P 500 remains near its flat line, while Treasuries hover on their lows (10-yr yield +4 bps at 2.44%) following the recent release of the FOMC minutes from the July meeting.
While the market has slipped from its high, sector standing has not changed much with respect to the S&P 500. Consumer discretionary (+0.3%), financials (+0.1%), and industrials (+0.9%) continue showing relative strength, while consumer staples (-0.2%), health care (-0.2%), and utilities ... More
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