The Fed Claims Recent Economic Weakness is Transitory

The Fed on the Economy

The Fed labels recent economic weakness as “transitory”.

This week’s podcast discusses the Fed’s insistence that economic recovery is just around the corner now that the bad weather is behind us and that interest rates will be raised one day.

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Podcast Summary:

0:00-2:20 Introduction

Review of The Federal Reserve’s Open Market Committee April Meeting Minutes

Moving the Goal Posts

2:20-6:10 discussion of the Fed’s view that they may continue to keep rates low even after their targets are met. The Fed won’t admit that they can’t raise rates. The Fed must say they are going to raise rates, lest they come across as being on a central bank with no exit strategy that is on permanent QE. Such a perception if it were to take hold would devastate the dollar. The Fed may need to hold out hope for higher rates to attract demand for U.S. Treasuries which declined in the most recent treasury report.

Foreign holdings of U.S. Treasuries

Foreign holdings of U.S. Treasuries dropped in February.

The Fed also has to stick to the narrative that confidence in the dollar should be maintained because the US economy is improving (or will improve) even though nearly all economic reports indicate that it is not. The U.S. debt to GDP ratio is not one of the best among developed nations.

6:10-8:45 discussion of Janet Yellen’s 2008 comments regarding quantitative easing. Ms. Yellen indicated that increasing the monetary base doesn’t help much. Yellen more recently in 2014 spoke out in favor of QE.

Q1 GDP 0.2%- The Main Stream Media Clings Stubbornly to the Recovery Narrative

8:45-16:20 Discussion of the first quarter GDP report.

Reuters headline before the release of Q1 GDP: US economy likely grew at snail’s pace in first quarter, but pickup seen

Reuters coverage after Q1 GDP was released: “U.S. economic growth braked more sharply than expected in the first quarter as harsh weather dampened consumer spending and energy companies struggling with low prices slashed spending, but there are signs activity is picking up.

There are no signs that the economy is “picking up” yet Reuters chose to place that language in the first sentence in which it blame the weather and lower oil prices for the decline. For months the Fed and the main stream media touted lower oil prices as a net positive for the economy while we dismissed such “tax cut” chatter. Now lower oil prices are being blamed for less economic activity as shale oil companies slow production and fire workers.

The Fed continues to blame the weather and to label recent economic weakness as “transitory”. The full impact of the lower oil prices on the shale oil debt derivative market have yet to be felt.

Social Media Companies’ Stock Market Performance Impact on the Economy

16:20-20:45 Discussion of manipulated markets, Linkedin and Amazon’s financial results and share buy backs. Workers at non profitable companies are technically non-productive. Discussion of the impact of rising stock prices on Silicon Valley and San Francisco home prices. What will happen when the stock prices of these companies collapse? Prediction of a massive real estate collapse in the SF Bay area. Discussion of the initial jobless claims number and what it portends.

How Are Millennials Faring?

20:45-25:00 discussion of the impact that the economy is having on millennials. Lack of opportunity leads to lack of inertia. Discussion of the importance of credentials. Discussion of Nobel Prize winner Paul Krugman’s views on alien invasions and trillion dollar platinum coins. Mr. Krugman probably views the Baltimore riots as “stimulative of aggregate demand”

The Broken Window Fallacy

The government should hire brick throwers to break windows to stimulate economic activity. (see, Bastiat The broken window)

The Baltimore Riots and Politics

25:00-40:15 discussion of the Baltimore riots. Discussion of people taking sides of either the police or the rioters. People are taking the side of either police brutality or destruction of property. Neither side is willing to admit the faults on their own sides. There are few solutions based narratives, most are divisive. When there are no solutions, too much chaos and disorder, societies’ get a dictator. Discussion of the failure of the new Greek government to deliver on their promise and a prediction that the government will collapse.

Discussion of politician’s promises and how they fulfill them with your own or your neighbor’s money. Voting as empowerment is discussed. Discussion of the role of the President. Should the President produce a budget? Discussion of Obama’s Hope and Change campaign. Discussion of Hillary Clinton’s campaign and the entry of Bernie Sanders in the Presidential race.

The Housing Market

40:15 discussion of the current state of the real estate market.

The Fed Claims Recent Economic Weakness is Transitory

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Further Reading:

Top Foreign Holders of U.S. Treasuries

Millennials Not Part of the Club

What Happens When the Stock Market Collapses

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