The Fed has been talking about ending quantitative easing and its zero interest rate policy for six years. Recently, it seemed that they might just do it. Well, maybe not.
Will China or Russia Revalue the Price of Gold?
How To Buy Gold
How to Buy Silver
The Fed calls it’s own bluff on raising rates
Introduction: 0:00- 3:54
How Part Time Job Growth Distorts the Interpretation of the Health of the Labor Market
3:54-5:40 The health of the labor market is distorted by some people getting two part time jobs making it appear that there is job growth.
Initial jobless claims are down because there are fewer people left to fire.
The health of labor market and the consumer should be measured by wage growth, type of jobs created and labor participation rate, all of which are poor. Citing an increase in consumer spending as evidence of the health of the consumer is incorrect as they are spending borrowed money and more on necessities like health insurance, energy and food.
The Fed Calls it’s Own Bluff on Raising Rates
Recently, the Fed and the Fed chair, Janet Yellen had been talking about keeping ‘hoily accalmaudative mawnetree paulicy’ for a “considerable period of time after QE ends. Then they started talking about how they might raise rates sooner than later as the economic “recovery” gathered pace.
Yet again, we hear in the September FOMC minutes released earlier this week a mishmash of views that reflect some of the misgivings that a few Fed Presidents had expressed regarding raising rates any time soon.
For Fed President statements issued prior to the release of the FOMC minutes click here.
The latest excuses for not being able to raise rates are a rising dollar, not enough inflation, we never set a date, we always said it was data dependent.
Fed President Williams sees first U.S. rate hike in mid-2015 | Reuters headline changed to Fed has not ruled out asset sales if needed, Williams says
San Francisco Fed President John Williams speaking the day after the Fed minutes were released embodied the type of Fed double speak we’ve grown accustomed to.
The Fed could raise rates more quickly if the economy starts to overheat, and sell assets if inflation were to start to get out of control and COULD raise rates in mid 2015. BUT if the economy slows “significantly,” the Fed could delay raising rates beyond what is currently expected.
Mr. Williams noted “the decision to raise rates will be data-driven, not date-driven.” “If the economy or inflation heat up faster than I expect, we should lift rates sooner,” “If progress on these fronts slows, we should wait longer”
The Fed wants the markets to think they have two options -the hawkish one where they raise rates and sell assets or the dovish one keep ZIRP (never mentioning another round of QE).
The Fed has only one option, that is to keep interest rates low however they can. Selling assets is not an option either.
Every year since 2009 the Fed threatens to end QE and raise rates and projects that the economy will improve “in the second half of the year.” It never happens. The Fed has shut down QE three times so far. Each time it has shut down QE it has come back with a larger program. QE4 is a real possibility.
Yet, There is (False) Hope in the Latest Initial Jobless Claim Data
U.S. jobless claims fall, point to labor market strength http://t.co/NLGJY0mXEj
— Reuters Business (@ReutersBiz) October 9, 2014
Discussion of the stories regarding Ben Bernanke not being able to get a mortgage and Warren Buffet’s comments regarding taking a mortgage being a “no brainer”.
The housing market is dead and these stories appear to be planted to act as a catalyst to “reform” some aspect of lending to spur further mortgage lending which is currently weak.
The State of the Housing Market
12:38 -16.59 The mainstream media has stopped using the term “recovery” in describing the housing market, yet some housing cheerleaders still exist. Hype to buy homes doesn’t work the way it works for consumer items. Reasons for the lack of home buying are discussed. Price reductions are now commonplace on homes for sale.
How a Stock Market Crash will end the Housing and Economic “Recoveries”
16:59-18-10 Discussion how the entire QE/ZIRP fueled recovery is based on rising stock markets and the attempt to rebuild confidence in the housing and stock markets (irrespective of otherwise poor economic conditions) and convince people that the deficit is under control.
Gold Bashing in the Mainstream Media Continues
The incessant gold bashing in the mainstream media is discussed.
Forbes: Dont buy the ads for gold and silver ….. but buy the stock infomercials that run on CNBC all day long.
Ned Davis: Gold is going to $600 an ounce
Bloomberg – How Low Can Gold Go
Bloomberg/Ritholz Obligatory #Gold Bash Piece:How Low Can Gold Go? http://t.co/5bmKUNndoi How low can stocks go?
— Smaulgld (@Smaulgld) October 6, 2014
.@ritholtz characterizing all those that buy #gold as 'world is ending" types is like saying all that buy stocks are degenerate gamblers
— Smaulgld (@Smaulgld) October 6, 2014
.@Joshua_Roberts_ @ritholtz many reasons to own #gold apart from the world is ending- do central banks own gold because the end is near?
— Smaulgld (@Smaulgld) October 6, 2014
If gold isn’t worth much central banks should just dump it and the US should sell whatever is in Fort Knox.
There Are Always New Ways To Issue Credit
People may be tapped out BUT they can always find ways to issue more credit:
there are people turning 18 everyday;
there is debt forgiveness,
programs to work off debt;
reduced credit standards;
larger credit lines; and
new monetary easing.
The better approach would be to not continue to try to extend more credit but to allow credit to retract. That however would be anathema to the whole credit ponzi scheme the central banks are running that drives up asset prices and makes the debts they’ve incurred easier to pay off.
The average person can get whatever they want on credit – except a house. Banks would rather not be stuck with foreclosed homes, especially with little return.
A carbon tax and digital currencies are bankers’ dreams as there is no collateral.
Why Rates Won’t Rise
24:05 – 28:00 Interest rates can’t rise because government can’t service the debt at higher rates and the stock market would crash and credit driven spending would slow. Artificially low interest rates force people who might be inclined to save to put money in the stock market. Banks are a poor option because of the low/no interest that they pay and the threat of bail-ins.
Reviewing Predictions re Rates, Gold and Silver Prices
28:000-31:35 Prior predictions (so far that have not come true) regarding higher interest rates when QE ended and higher gold and silver prices are discussed.
The Fed Legally Manipulates Interest Rates
31:35 -34:15 The Fed legally manipulates interest rates to pursue their monetary policy. It follows that they need to manipulate other markets to increase the likelihood that their policies will succeed. Discussion on how the Fed maintains credibility.
Why reporters don’t ask hard questions are not discussed (to avoid having to do ambush journalism).
End the Fed
34:15-38:15 the book End the Fed by Ron Paul is discussed. The issues discussed today are regarding whether the Fed should raise rates, rather than whether there should be a federally mandated bank that gets to decide the price of money. Discussion of the increase in the money supply by the Fed and its impact on deflation. The Fed’s increase of the money supply has driven up asset prices.
U.S. dollars in physical form represent a single digit percentage of all money and more than 50% of those dollars are overseas.
The Stock Market Valuation
38:15-44:00 The stock market level doesn’t correspond to the health of the economy or the levels of revenue growth, as such, the market could crash- perhaps as early as today or Monday!
Rising home prices are discussed in the media as a good thing, even though they make homes unaffordable.
Gold bashing is discussed again. Those that argue against high stock prices are given monikers like Dr. Doom. Higher stock prices are self validating as to the health of the underlying shares in the market. When gold went up from 2000-2012 the media barely covered its rise.
.@nyinvesting @zerohedge As long as the stock market is higher & the NFP comes in over 200K we have PROOF of a recovery.
— Smaulgld (@Smaulgld) October 3, 2014
44:00-45:29 Discussion of why gold and silver manipulation makes sense and how it’s done.
Monetary policy is publically promoted by the Fed as a means to boost stock and real estate prices to create a “wealth effect”.
Discussion of an exchange with Bloomberg Reporter Barry Ritholz regarding gold.
45:29-50:03 discussion of the mind set of the anti-“gold bug” crowd. The best investors don’t view asset classes in terms of political philosophies, but rather on valuations, but there are not valuations in today’s market, just manipulations!
The potential of a stock market crash are discussed again.
Student Loan Debt is Holding Back the Housing Market
50:03-54:09 It’s finally dawned on main stream media reporters and housing cheerleaders that maybe massive student loan debt burdens are impacting the economy and real estate market- something discussed here in April 2013.
Lizzie Warren to the rescue with more government programs to help people pay for overpriced college classes! Giving people money or credit to buy things they don’t need doesn’t help the economy. More foods stamps don’t help the economy either no matter what Nancy Pelosi says!
Why are Homes not Selling With Interest Rates so Low?
– potential qualified borrowers are getting turned down for mortgages because of tighter lending standards;
– millennials watched their parents get kicked out of their home;
– millennials have student loan debt;
– healthcare costs are higher;
– people have higher consumer credit; and
– the mortgage application process is like an IRS audit AND after it you don’t get the loan.
Why lending institutions prefer lending money at higher rates to sub prime borrowers is discussed.
What Might Derail the Fed’s Hegemony over Interest Rates and Gold and Silver Prices
Revaluation of Gold by China or Russia?
100:19 perhaps a Chinese or Russian unilateral revaluation of gold, like the US did in 1933 , or a refusal to accept dollars, might do the trick.
One way China or Russia could increase the value of their reserves without having to buy more gold is to revalue the price of gold. The US/London market may not respect the price but sellers would sell their gold to the Chinese and other eastern exchanges to get the higher price, thereby giving the east more gold and more pricing power over it.
Could China Revalue the Price Of Gold?