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Our monetary system is insane

bernorange

By bernorange
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Al Bundy's Napoleon Hand

Al Bundy's Napoleon Hand 13,585

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https://www.theatlantic.com/magazine/archive/2020/07/coronavirus-banks-collapse/612247/

 

"Even before the pandemic struck, the credit-rating agencies may have been underestimating how vulnerable unrelated industries could be to the same economic forces. A 2017 article by John Griffin, of the University of Texas, and Jordan Nickerson, of Boston College, demonstrated that the default-correlation assumptions used to create a group of 136 CLOs should have been three to four times higher than they were, and the miscalculations resulted in much higher ratings than were warranted. “I’ve been concerned about AAA CLOs failing in the next crisis for several years,” Griffin told me in May. “This crisis is more horrifying than I anticipated.”

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workswithseed

workswithseed 2,108

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I feel I was given a lie. I didn't see her bust at all on the coin. Just a head!

 

"Antoniniani depicting women (usually the emperor's wife) featured the bust resting upon a crescent moon.?

Edited by workswithseed
I wish I was just given a pie.
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bernorange

bernorange 8,361

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As central banks pump trillions into the world economy, investors are setting their sights on what could be the next big thing in global monetary policy: yield curve control.

The strategy, which involves using bond purchases to pin down yields on certain maturities to a specific target, was once deemed an extreme and unusual measure, only deployed by the Bank of Japan four years ago after it became clear that a two-decade deflationary spiral wasn’t going away.

No longer. This year, the Reserve Bank of Australia adopted its own version. And despite officials’ attempts to cool it, speculation is rife that the U.S. Federal Reserve and Bank of England will follow later this year.

Should yield curve control go global, it would cement markets’ perception of central banks as the buyers of last resort, boosting risk appetite, lowering volatility and intensifying a broader hunt for yield. While money managers caution that such an environment could fuel reckless investment already stoked by a flood of fiscal and monetary stimulus, they nonetheless see benefits rippling across credit, equities, gold and emerging markets.

“It depends on the form and the price but broadly speaking it’s the green light to carry on with the QE trade -- buy everything regardless of valuation,” said James Athey, who manages $3.1 billion at Aberdeen Standard Investments in London.
...

More:  https://www.bloomberg.com/news/articles/2020-06-21/a-buy-everything-rally-beckons-in-world-of-yield-curve-control

The US financial markets are entirely owned by the Fed now.  A small group of people decide winners and losers.  Rules, logic, "sound investment strategies" really have no bearing in our financial markets.

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bernorange

bernorange 8,361

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13 hours ago, Rusty Shackelford said:

Gold hit $1,800, looks like ATH will be set in 2020.

I was reading something the other day where the author was claiming that once 1800 was breached, there would be a bit of a short squeeze propelling gold higher.

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Rusty Shackelford

Rusty Shackelford 414

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22 minutes ago, bernorange said:

I was reading something the other day where the author was claiming that once 1800 was breached, there would be a bit of a short squeeze propelling gold higher.

I think you can take your pick of reasons why, but I see a new multi-year gold bull market starting.

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bernorange

bernorange 8,361

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I don't care necessarily for the partisan political sniping in the following, but it is good to see the primacy of the monetary policy issue being asserted with respect to modern problems.

Quote

... Thomas Piketty. His chart 9.8 shows a sudden and staggering take off in the inequality rate, first in America, then in Europe. Yet it wasn’t the rejection of socialism that swept the world at that juncture. Socialism was rejected after World War II. What happened in the 1970s was the advent of fiat money — money with no legal attachment to any standard of value.
...

https://www.nysun.com/editorials/could-left-and-right-agree-on-this/91179/

Bretton Woods was untenable circa 1970, but the untethering of fiscal policy to sound money is the root of the exponential math issues that are on our horizon.

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Rusty Shackelford

Rusty Shackelford 414

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I don't care necessarily for the partisan political sniping in the following, but it is good to see the primacy of the monetary policy issue being asserted with respect to modern problems.
... Thomas Piketty. His chart 9.8 shows a sudden and staggering take off in the inequality rate, first in America, then in Europe. Yet it wasn’t the rejection of socialism that swept the world at that juncture. Socialism was rejected after World War II. What happened in the 1970s was the advent of fiat money — money with no legal attachment to any standard of value.
...
https://www.nysun.com/editorials/could-left-and-right-agree-on-this/91179/
Bretton Woods was untenable circa 1970, but the untethering of fiscal policy to sound money is the root of the exponential math issues that are on our horizon.


Are you buying gold or holding?
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Dbeasy

Dbeasy 15,051

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I’ve been reading on the topic of fed policy and am finally understanding that it is producing asset bubbles and more and more inequality. The questions becomes, “how and when does this end?”

Is this going to keep going like this for years?

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bernorange

bernorange 8,361

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Any gold I may have bought in the past was lost to the bottom of a large lake in an unfortunate boating accident. 

I'm not buying much of anything these days as business activity has fallen off a C19 cliff and the future is uncertain.

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Rusty Shackelford

Rusty Shackelford 414

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59 minutes ago, bernorange said:

Any gold I may have bought in the past was lost to the bottom of a large lake in an unfortunate boating accident. 

I'm not buying much of anything these days as business activity has fallen off a C19 cliff and the future is uncertain.

How many oz did you lose, if you don't mind me asking? 😉

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Snake Diggity

Snake Diggity 4,625

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3 hours ago, Dbeasy said:

I’ve been reading on the topic of fed policy and am finally understanding that it is producing asset bubbles and more and more inequality. The questions becomes, “how and when does this end?”

Is this going to keep going like this for years?

As long as unemployment is relatively low, the Fed will be able to unwind the printing to some degree.  The theory won’t really be tested until we start to see rising inflation at the same time the economy is down.

My non-expert opinion is that the of basis Fed policy is sound, but it is executed in a very inefficient way that feeds inequality and exacerbates asset bubbles.  Access to borrowing and stimulus should be directed further down the chain where it can spread further and generate more monetary velocity.  Instead of bond purchases and lending to banks, the Fed should address rates and unemployment by providing access to capital directly to individuals.  Why not make available zero rate loans from the Fed to anyone buying their first home (Fannie/Freddie), pursuing an education (Sallie) or starting a business (SBA)?  I’d even wonder if the Fed should directly fund (via interest free loans) Social Security and Medicare/Medicaid for all.  I welcome getting schooled on this.

Edited by Snake Diggity
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elfenix

elfenix 34,241

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1 hour ago, Snake Diggity said:

My non-expert opinion is that the of basis Fed policy is sound, but it is executed in a very inefficient way that feeds inequality and exacerbates asset bubbles.  Access to borrowing and stimulus should be directed further down the chain where it can spread further and generate more monetary velocity.  Instead of bond purchases and lending to banks, the Fed should address rates and unemployment by providing access to capital directly to individuals.  Why not make available zero rate loans from the Fed to anyone buying their first home (Fannie/Freddie), pursuing an education (Sallie) or starting a business (SBA)?  I’d even wonder if the Fed should directly fund (via interest free loans) Social Security and Medicare/Medicaid for all.  I welcome getting schooled on this.

a couple weeks ago on the make me smart podcast molly wood asked why the fed was bailing out big institutions and kai ryssdal (kind of exasperatedly) retorted that that's their job. 

which should have struck up a conversation about why our institutions seem designed to protect the big boys and not main street or poors. 

Edited by elfenix
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Rusty Shackelford

Rusty Shackelford 414

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And extra inflation as a stated policy from the Fed


https://www.bloomberg.com/amp/opinion/articles/2020-07-17/the-fed-is-setting-the-stage-for-a-major-policy-change?__twitter_impression=true


Faced now with the prospect of another prolonged period of low inflation, Fed officials are signaling they will place less emphasis on Phillips curve estimates when setting policy. Fed Governor Lael Brainard said this week that “with inflation exhibiting low sensitivity to labor market tightness, policy should not preemptively withdraw support based on a historically steeper Phillips curve that is not currently in evidence.”

No longer are estimates of longer-run unemployment taken as almost certainly indicating the economy is at full employment. Instead, Brainard said the Fed should focus on achieving “employment outcomes with the kind of breadth and depth that were only achieved late in the previous recovery.” The Fed is going to try to run the economy hot to push down unemployment.

By de-emphasizing the Philips curve, the Fed loses its primary inflation forecasting tool. Instead of an inflation forecast, the Fed will rely on actual inflation outcomes to determine the appropriate time to change policy. Brainard pointed out that “research suggests that refraining from liftoff until inflation reaches 2% could lead to some modest temporary overshooting, which would help offset the previous underperformance.”

Think about what she is saying. Traditionally, the Fed attempts to reach the inflation target from below, effectively using the unemployment rate to forecast inflation and then moderating growth such that projected inflation doesn’t exceed its target. Brainard is saying the Fed should not tighten policy until actual inflation reaches 2%. Policy lags — the time between the Fed’s actions and the resulting economic outcomes — mean inflation will subsequently rise above 2%. The Fed would thus overshoot the inflation target and then return to the target from above.

Federal Reserve Bank of Philadelphia President Patrick Harker goes even further in a Wall Street Journal interview, saying “I don’t see any need to act any time soon until we see substantial movement in inflation to our 2% target and ideally overshooting a bit.” Expect to see more Fed speakers also saying they want inflation at or above 2% before they tighten policy. Also expect to see something along these lines codified at in a policy statement.

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bernorange

bernorange 8,361

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Initially, gold moved slowly after breaking through $1,800. The last few trading days have seen bigger moves.  Silver is also moving up again.

The Fed is really in a tough spot.  Congress is likely to pass (eventually) some more fiscal stimulus (thanks c19).  Monetary brrrt will likely have to continue to keep the gears turning.  Most central banks are doing the same, so as long as currencies don't get out of balance relative to each other, hopefully we can avoid escalating geopolitical tensions (ie. another shooting war).  But still, eventually central banks are going to have to at least try to unwind the brrt (trrrb?) without crashing the credit markets and real economy.  The Fed didn't have too much luck with their efforts to unwind the last round of QE before the repo market blowout.  Not sure they will have better luck unwinding a much bigger mountain (an order of magnitude bigger).

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Captainant

Captainant 27,669

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10 minutes ago, bernorange said:

Initially, gold moved slowly after breaking through $1,800. The last few trading days have seen bigger moves.  Silver is also moving up again.

The Fed is really in a tough spot.  Congress is likely to pass (eventually) some more fiscal stimulus (thanks c19).  Monetary brrrt will likely have to continue to keep the gears turning.  Most central banks are doing the same, so as long as currencies don't get out of balance relative to each other, hopefully we can avoid escalating geopolitical tensions (ie. another shooting war).  But still, eventually central banks are going to have to at least try to unwind the brrt (trrrb?) without crashing the credit markets and real economy.  The Fed didn't have too much luck with their efforts to unwind the last round of QE before the repo market blowout.  Not sure they will have better luck unwinding a much bigger mountain (an order of magnitude bigger).

Just imagine how fucked we would be if we had an actual free market that was subject to market forces, rather than corporate socialism

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RDCanecutter

RDCanecutter 26,443

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On 7/1/2020 at 11:38 AM, workswithseed said:

I'm glad I started buying gold, if only at 1/10 of an ounce.

I love shiny metal, but I put $4 in stocks for every $1 I put in precious metals. Kinda like 4 tires to run on, one tire as a spare.

The main thing is not to associate with people who steal stuff.

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Captainant

Captainant 27,669

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1 minute ago, GRHorn said:

You always question what Goldman’s motives are behind anything they put out, but there it is. 
 

We're at record high levels of unemployment while the fed is pumping nearly a trillion dollars into the corporate bond market. That's literally the conditions for stagflation, which tends to have a deleterious effect on the viability of the currency it's happening to. The sky is blue, what else is new?

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bernorange

bernorange 8,361

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30 minutes ago, Captainant said:

...  The sky is blue, what else is new?

You can try to minimize the issue if it makes you feel better, but this is new and significant territory for the US Dollar and the foundation of American hegemony. Roughly ten years ago, when I started talking about the dollar being in danger of losing it's global reserve currency status, most everyone thought I was a loon - wasn't going to happen in our lifetimes.  They still might think I'm a loon, but likely not because of this issue.  The insanity of our monetary policy is starting to pierce the public consciousness.  And that's important because our monetary policy is a con(fidence) game.

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Rusty Shackelford

Rusty Shackelford 414

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1 hour ago, bernorange said:

You can try to minimize the issue if it makes you feel better, but this is new and significant territory for the US Dollar and the foundation of American hegemony. Roughly ten years ago, when I started talking about the dollar being in danger of losing it's global reserve currency status, most everyone thought I was a loon - wasn't going to happen in our lifetimes.  They still might think I'm a loon, but likely not because of this issue.  The insanity of our monetary policy is starting to pierce the public consciousness.  And that's important because our monetary policy is a con(fidence) game.

 

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