Do Central Bankers Know Something we Don't Know?

Do Central Bankers Know Something we Don't Know?






The sensational thing that happened two days ago that the Fed lowered rates by half a point as markets expected a cut of only 0.25. And still, despite this, the stock markets went down. Why? Such a drastic measure can only mean one thing: Recession. And here come the sales. The Fed will never admit any wrongdoing. Remember Ben saying that he never saw the crash of 2008 coming. Other than printing money for themselves and their buddies, the other thing they are good at is obfuscating and outright lying. The truth is a for-profit, politicized, central authority that is incapable of measuring inflation should not be determining interest rates. At present, the tail is wagging the dog. The demand for the debt should be determining interest rates, not the other way around. The attempt to suppress recessions/depressions in pursuit of perpetual economic growth and inflation is the problem. Recessions/depressions are inherent in debt-driven economies/markets and need to be allowed to play out without intervention. The difference between Capitalism and Socialism is that Capitalism allows financially not sustainable entities to fail, to cleanse the economy of unproductive debt. That is also why Capitalism does not destroy economies. Unnecessarily low-interest rates and QE are forms of Socialism and are unsustainable. Link the rate of change of private sector debt to the interest rates to allow the markets to determine the rates. End the central banks and neo-classical economic theory. Fed had almost 12 years to correct the greed and mistakes of 2008, did nothing, and now we are back to Zero Interest Rates, QE and Printing. Welcome back to The Atlantis Report. Please take some time to subscribe to my back up channels. I do upload videos there, too, on a daily basis. You'll find the links in the description box. Thank You. QE was the FED buying at the longer end of the curve. The Quantitative Easing of 2008-2009 was all about reducing the supply of long-term debt in hopes of lowering long-term rates, which they hoped would revitalize the real estate market. It also reflects the reality that the Fed has lost control of interest rates. The entire theory of QE was to increase the money supply in circulation by purchasing government bonds. That would inject cash into the system since the Fed does not and cannot create debt, for it has no such borrowing authority." Since foreigners held much of the long term debt, dollars flowed out of the US as the FED bought these bonds. The Chinese unloaded almost all their long term treasuries and bought short term and said thank you very much. The money never went to the intended purpose, which was real estate. The FED seemed to overlook the little fact that foreigners own US debt, and it is not all owned by Americans. Whoops! The FED has been buying short term treasuries which are not QE, so the statement " if the Fed does, in fact, capitulate as most expect it to do, it will be effectively admitting that "Not QE" was, in fact, QE4 all the time, as a handful of critics have claimed all along" makes no sense. The FED is also still acting as a middleman and loaning overnight to banks and investment banks, (repo) because they still refuse to lend to each other as US banks do not know the exposure each other has to Europe and its banks which is rapidly deteriorating especially now with the coronavirus hitting supply chains, European firms earnings home and in Asia especially Germany with car sales plummeting . The FED is desperate to push short term rates down, (private rates by keeping overnight lending going as they have no choice which spiked 10% in September when banks stopped lending all because confidence is lost in Europe). This would have spread to consumers and businesses with everyone paying 10% more on credit cards, car loans, leases, construction loans, home improvement loans, business revolving lines of credit, business receivable lines of credit, in fact, any short term loans. This would have hit the construction and home improvement sector hard as even loans for appliances, for example, which most people finance would have shot up, causing a domino effect along with hitting the auto industry even more badly than what it already being hit. This is the coming disconnect between private and public (treasuries) interest rates. The fact is banks never did entirely pass on their much lower cost of capital to consumers and businesses. And the spread between private and public rates have been at historic highs. Interest rates for consumers and businesses should have been much lower, and savings rates should be higher. I think it is a myth that the lowered rates just announced will be magically passed on to borrowers in the form of lower rates. Many banks have previously been lowering savings rates before the cuts. Many still pay 29% on credit cards while savings are being wiped out! The FED has lost control of rates and is in a panic, and they will eventually lose the battle to keep private rates for consumers and borrowers as low as they are. As long as the FED can still buy short term treasuries and international capital flows still flees into these, also bidding up prices and collapsing yields public rates will remain low but again private is a different animal. Eventually, the FED will lose this control too. The long-term sustainability of the credit system is based on differences between the “market interest rate” and the rate at which an average business can borrow, i.e., the “natural interest rate,” which is close to that of the structural growth of the economy. When the market rate is much higher than the natural rate, as has been the case in Italy for the past 15 years, Japan in the 1990s or the United States in the 1930s, the market rate is artificially removed by the central bank. The result is an increase in the value of existing assets financed by debt and a license allowing "zombie businesses" to survive when the process of creative destruction is stopped. The central bankers accused of this type of period tend to describe this decline as "secular stagnation" because they don't understand that their own policies are causing the problem. Central banks are issuing more and more paper to buy assets and suppress volatility in the credit markets. We must be in a worrying period since, for the first time in fifty years, the Bundesbank bought gold for its reserves. Do these central bankers know something I don't know about? There are several reasons to expect the US stock market outperformance to continue. In recent years, three critical awards, 10-year Treasury bills, crude oil, and the US dollar - did not show any particular trend. The global economy is facing many concerns, and bond yields are at the lower end of their range. For the past four or five years, the US dollar has been stuck in a range. Oil prices are in the middle of their average price for the past five years. Global equities are at roughly the same level as just under two years ago. One of the most notable trends in recent years has been the outperformance of US stocks. With central banks easing again, bond yields are unlikely to fall. The elements are in place for a reassessment of the US equity market. If this scenario materializes, US stock prices could rise as valuations remain reasonable. While the price/earnings ratio of the S&P 500 is historically high, equity valuations compare more favorably to bonds than at the end of the 1990s. A recovery in confidence should lower their risk premium and favor a new notation. Chinese indicators to stop worsening in the coming months Three sets of data can help answer questions about China's economic health: exports, domestic investment, and automobiles. The number of exports should not be expected to increase much before the middle of 2020, in the absence of a broader recovery in global demand. In September, the central government launched a coordinated message on supporting growth. As production and export growth slowed, companies did not feel motivated to stimulate investment. The new emission standards and the expiration of tax breaks have both caused major shocks in the auto sector. Sales and production of cars could be brought to zero growth simply by the base effect. Gone are the days when increased activity in China could generate global growth. In the hope of a US / China agreement and a little clarity on Brexit, the political risk could recede, which would be bearish for the US dollar. Emerging markets are easing the parameters of their fiscal and monetary policy. So why aren't investors more excited? From Indonesia to Brazil, interest rates are falling. Emerging markets outside China could now become the main engine of global economic growth. Over the next decade, half of the global growth could come from emerging markets outside China, a quarter (or less) From China and a quarter from developed economies. Recent ECB announcements suggest continuity. Mario Draghi made the ECB the guarantor of the European monetary union . This was materialized by its 2012 promise to “do whatever is necessary” to save the single currency and to build on the “Outright Monetary Transactions” (OMT) program still unused until now. It is a tool that allows the ECB to buy unlimited debts from a country as part of an official bailout program. This corrects a flaw in the design of the euro area by making the ECB a lender of last resort for sovereign states. Recent political announcements indicate continuity in Mario Draghi's approach. Christine Lagarde's key role will be to communicate the ECB's point of view on the necessary policy mix in the euro area. European politics are close to paralysis. Although there have been fewer clashes this year, fragmentation of the political center makes effective governance difficult everywhere. France is the exception to the rule in Europe, and its economy is doing better than most of the other countries. Spain can overcome political paralysis in the short term. Current European political frameworks will do little to remedy structural rigidities. The violent protests that are now sweeping through the big cities have disparate root causes. What can link these movements is a disconnection between economic infrastructure and the political superstructure. One of the main changes in the economic infrastructure in recent years has been the knowledge revolution that falls on those who are able to manage and manipulate knowledge. The religious upheavals of the 16th century were triggered by the invention of the printing press. The knowledge revolution of today has had the effect of highlighting the inadequacy of our political representatives. Representative democracy was a top-down political approach, but the world has changed. Logic suggests that the knowledge revolution should lead to a new model of direct democracy. In Hong Kong, the government sent a message that protesters would be excluded from the political process. At the same time, Beijing has indicated its intention to take more direct control of Hong Kong. The problem with “taking control” is that it would mean trampling the necessary rights in a large global financial center. Exercising direct control can mean directing judicial appointments. The government could expand its emergency powers - but to what end. It should be noted that the Chinese Communist Party did not rule out the possibility of democratic development in Hong Kong. There are signs that the Asian electronics export cycle is collapsing. Technology has accounted for 90% of the equity returns of emerging Asian countries over the past five years. Some poorly treated companies may be ready to rebound. The same could apply to export-sensitive currencies such as the Korean won, the Singapore dollar, and the Taiwan dollar. The price of memory chips seems to have stabilized. Asian technology may not have a new growth engine, but investors are weakly positioned, and the sector may behave well in the short term. In conclusion. The Feds racket is pretty simple. They are swiping the value of the cash in your pocket—every day of your life. This was The Atlantis Report. Please Like. Share. Subscribe. 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