#FederalReserve aka #Fed Discovers Gold – Fools Gold

No.  I am NOT talking about the movie, Fool’s Gold.

foolsgold

I am talking about the Fed finding wealth and a strong economy where there is none.

Like the little boy who cried “Wolf!”,  the Fed keeps saying “The Economy is good!”

Here is the fool’s gold the Fed uses to keep saying :The Economy is good!”

1. Auto sales are up.  Well they were up until the recently released May report showed a drop of 6%.  The recent auto sales were propped up by easy credit but now they have run out of buyers.  Here are details.

http://www.reuters.com/article/us-usa-autos-idUSKCN0YN4K0

2. Home sales are up.  Well they were up until the June 1, 2016 report.  Again home sales have been boosted by easy credit and low interest rates until now. Here are details.

http://www.cnbc.com/2016/06/01/mortgage-applications-drop-because-of-rate-uncertainty.html

3. Unemployment is down.  Well unemployment has dropped to 4.7% but the recent jobs report announced June 3, 2016 showed a shocking one fifth the average number of jobs created.  Unemployment went down because more people have given up or are retired. Here are details.

http://money.cnn.com/2016/06/03/news/economy/us-economy-may-jobs-report/

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Here are the real concerns the Fed should be looking at.

1. Freddie Mac and Fannie Mae.  These firms have been using derivatives to hedge against interest rate changes and lost $475 million last year. Here are details.

http://www.marketwatch.com/story/freddie-mac-may-need-another-taxpayer-bailout-next-week-2016-04-29

2. US Productivity.  The statistics show it went down 1% in the first quarter and now one of the Fed members says it may go down again this month. Here are details.

http://www.reuters.com/article/usa-fed-evans-productivity-idUSU8N16O051

3. Corporate Bond Sales.  These are still high and may match last year’s record in order to finance other mergers. Here are details.

http://www.bloomberg.com/news/articles/2016-04-28/get-ready-for-a-big-wave-of-u-s-corporate-bond-sales-in-may

In summary, the 2008 bailout involved lower interest rates.  But the Fed should have raised interest rates in 2011 instead of maintaining the ridiculous 2% inflation target.  Here is how:

https://michaelekelley.com/2015/03/27/the-kelley-monetary-policy-rule/

Or if you want more information on whether a recession is coming or not, read this.

https://michaelekelley.com/2015/03/02/why-another-recession-is-coming/

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The Fed is chartered with controlling inflation and encouraging job growth.  One Fed member recently said they are too busy to add a third task aka improving the economy.  Well they have dropped the ball on job growth which would have improved the economy.  Here is what the Fed could have and still can do for job growth.

https://michaelekelley.com/2014/03/28/federal-reserve-can-create-jobs/

Good luck out there.

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#FederalReserve Is In A Pickle

Here is the status of the Federal Reserve Board (Fed).

bbpickle

Background

Over a year ago the Federal Reserve Board (Fed) stopped Quantitative Easing, aka the buying of securities in order to pump money into the economy to stimulate it.

Feeling the economy was stable, the Fed just raised the Fed Funds Rate.  That is the interest rate the Fed charges banks.

Today

However, several other nations continued to lower their interest rates  and some have a negative interest rate policy, NIRP.  Here is more info on NIRP.

https://michaelekelley.com/2016/01/31/japan-why-negative-interest-rates/

Now the Fed is in a pickle because the Fed will look foolish if they reverse course and lower the Fed Funds Rate.

What Is Normal?

https://michaelekelley.com/2015/02/11/fed-inflation-target-is-abnormal/

According to the above website, if the Fed wanted the Inflation Target to be 2%, then the Fed Fund Rate should be 2% plus 1.44% or 3.44%.  Then 3.44% should be the normal Fed Funds Rate.

What Are The Fed’s Options?

How does the Fed get back up to the normal 3.44% Fed Funds Rate?  It can do one or both of these:

1.  Set the long-term interest rate to set a goal OR

2.  Keep unchanged or raise the Fed Funds Rate OR

3.  Offer another round of QE.

The best option is to have another round of QE which has the most influence and least fear while leaving the Fed Funds Rate alone.

Kelley Monetary Policy Rule

The Taylor Rule involves raising the Fed Funds Rate 1 percent for each 1 percent in inflation.  We have no inflation so the Taylor Rule is of no help.

The Kelley Monetary Policy Rule states the Fed Funds Rate will be increased gradually (such as .25% each quarter) and QE will be reduced gradually to zero at a rate inversely proportional to the Fed Funds Rate.

When the Great Recession hit, the Fed lowered the Fed Funds Rate AND offered QE at the same time.  Why can’t the Fed raise the Fed Funds Rate AND offer QE at the same time?

This should eliminate any fear by the Fed or the financial market and get us back to normal.

Good luck.

Hank Paulson Caption Contest

According to Hank Paulson, former Treasury Secretary, who helped save the big banks, there is a big difference between 2007 and now.

hank_paulson

 

Select your favorite caption for this photo.

1.  What inequality gap?  It has only grown by THIS MUCH!  Ha. Ha. Ha.

2. The Federal Reserve has kept interest rates at .025 for THIS LONG and credit card companies are still charging 24%.  Hee. Hee. Hee.

3. Thanks to my HUGE circle of friends, Goldman has 4 of the 5 regional Fed presidents voting in 2017.  Yuck. Yuck. Yuck.

4. The big banks have only gotten THIS MUCH BIGGER.  Ya ha ha.

5. My dachshund has grown and is this LONG now.  Ho. Ho. Ho.

Ok.  Maybe this isn’t so funny.

Dear Federal Reserve: Please Raise The Price of Gold

This sounds selfish but this is the only solution to prevent a world-wide recession.

prayingtogold

There are two possible solutions to the problem of the high dollar value and low gold price.  But before discussing the solutions, we need a little background information.

The Federal Reserve, the European Financial Organizations and the largest banks in the world have agreed to keep the US Dollar as the monetary standard.  To do that they need to manipulate the price of gold so it does not replace the dollar.  This means keeping the dollar high and the price of gold low.

Keeping the dollar high has the added advantage of keeping imports low which improves the US trade deficit.  Having a good trade deficit and a strong dollar gives the impression of a strong US economy.

One problem is Russia and China.  They are not happy with the high dollar value and low gold value.  Consequently they are creating their own monetary standard and creating exchanges in their own currency.  This allows them to avoid the US dollar completely.

Another problem is the largest banks such as JPMorganChase are dealing in large quantities of gold derivatives which is lowering the price of physical gold.  See this:

http://www.zerohedge.com/news/2015-07-09/are-big-banks-using-derivatives-suppress-bullion-prices

The real problem is the amount of debt of many countries around the globe.  Greece and the US are just 2 of 12 countries out of 64 whose debt is greater than their country’s Gross Domestic Product (GDP).  That means almost 20%of the largest countries in the world are in debt as seen in this website:

https://en.wikipedia.org/wiki/List_of_countries_by_public_debt

Now to discuss the solutions to the problems of  high debt and the high dollar value and the low gold price.

One solution is to let the nations in debt exchange their US dollars for gold.  But this could result in the depletion of US gold reserves and then the world would find out that the paper gold value does not equal the physical gold valueThat would cause a run on banks, a rush to cash and possibly a global recession.

Chris Powell of the Gold Anti-Trust Action Committee said, “The system may end when one country pulls the plug on it, exchanging U.S. dollars and government bonds for more gold — real metal — than is available, or when ordinary investor demand exhausts supply, which is more or less how the London Gold Pool ended in 1968.”

So a better solution is to raise the price of gold to eliminate the debt around the world.  Some people are proposing a 7 fold increase in price.

Chris also said, “… a study in 2006 by the Scottish economist Peter Millar concluded that to avert such a catastrophic debt deflation, central banks would need to raise the gold price by a factor of seven to 20 times in order to reliquefy themselves and devalue their currencies and society’s debts…”

For more information on what Chris Powell said, read the following website:
http://www.gata.org/node/14839

Okay.  I admit I own GLD and UDN and this would benefit me.  But now I am giving you the chance to also profit from this information.  here is some more useful information:

https://michaelekelley.com/2014/10/16/8-things-to-do-when-recession-happens/

Thanks

Greece Is Like Lehman Brothers

Both Lehman Brothers and Greece were denied a bailout.

Specifically the United States Government and the International Monetary Fund (IMF) refused to bailout Lehman Brothers and Greece, respectively.

stop_bullrun

 

Unfortunately close behind were/are lots of other troubled and unstoppable financial organizations and debt-ridden countries.  [It is like trying to stop a bull run with your bare hands, oh yeah, and a red bandana.]

Countries like Italy, Portugal, Ireland, and Belgium all have public debt over 100 percent of their country’s GDP.  Japan is over 200 percent.  See the following for detailed statistics.

http://www.statista.com/statistics/268177/countries-with-the-highest-public-debt/

Unfortunately Greece had debt payments that looked like Mount Everest on a graph.

http://www.marketwatch.com/story/greeces-looming-debt-repayments-in-a-pair-of-charts-2015-06-02

The US Government and the IMF have been strict with Lehman and Greece, respectively.  Like the US Government, the IMF can be expected to panic with the next oncoming overwhelming group of debtors. 

To learn more about the Lehman Brothers bankruptcy, read this.

http://www.heritage.org/research/reports/2013/09/lehman-brothers-bankruptcy-and-the-financial-crisis-lessons-learned

Thanks

Stop In the Name of Love

This is the Federal Reserve Board (Fed) Chairwoman, Janet Yellen.

yellen (2)

She probably doesn’t dance like she used to, but she still gets around.

Pick your favorite caption to go with this photo.

1. I have 5 grandkids.  How many do you have?

2. You know the cop on the Monopoly board that sticks his hand out and says, “Go to jail”?  Well, I am nothing like him.

3. Congress, you silly old goats, will you stop harassing me?

4. Let’s make a deal.  I will not increase interest rates for 5 months in exchange for less harassment.

5. We give you five five mints in one. You know, five money printing presses in one country.

You have to hand it to Janet, she has a nice smile.

Have a great day!

 

Fed Warns of Two Bubbles

Hidden in recent Fed remarks by Yellen, are fears that CDM and CRE are bubbles.

comm_real_estate_2015

CRE stands for Commercial Real Estate. In terms of CRE prices and change, the above chart from Gerdau shows investments across the country are soaring.

For example the General Motors building just sold for an amount that values it at $3.4 billion, the most expensive office building in the United States.

Also William Ackman and other investors purchased a penthouse apartment at One57 in Manhattan for over $90 million, the highest price ever paid in New York City, as an investment to flip for a profit.

The CRE bubble did not burst in 2008, but evidently is bigger now.

corp_debt_mkt_2015

CDM stands for Corporate Debt Markets also known as Debt Capital Markets. In terms of CDM, the above chart by Dealogic, dated February 5th, 2015, shows a 30% increase in the spread for the year.

Specifically, the average spread to benchmark on 30-year global debt issuance peaked at 193bps in January 2015, a 30% increase on January 2014 (148bps), marking the highest monthly average benchmark spread since October 2009 (206bps).

Here is exactly what the Fed minutes said on 2/19/2015.

“However, the staff report noted valuation pressures in some asset markets. Such pressures were most notable in corporate debt markets (CDMs), despite some easing in recent months. In addition, valuation pressures appear to be building in the CRE sector.”

At least the Fed is aware of the bubbles and not totally focused on interest rates.

 

Fed Inflation Target Is Abnormal

The Fed Fund Rate is at a historic low of 0.25, practically zero.  Why?

abnormal

Because the Fed has an Inflation Target of 2%.  Same as the World’s Central Bankers.

HISTORY

But that is totally abnormal when you look at the historical values of Inflation and the Federal Reserve (Fed) Fund Rate in the United States.

inflation_vs_fedfundrate

The 52 year average for the Fed Fund Rate is 5.45% and for Inflation is 4.01%.

That is a difference of 1.44%.  Notice the Fed Fund Rate is usually above the Inflation Rate.

If the Fed wanted the Inflation Target to be 2%, then the Fed Fund Rate should be 2% plus 1.44% or 3.44%.

Instead the Fed Fund Rate is 0.25% which should drive an Inflation Rate of 0.25% minus 1.44% or negative 1.19%.  That means deflation!  Oops!

For another opinion, look at this:

http://www.marketwatch.com/story/fed-sharpshooters-cant-hit-2-inflation-target-much-less-4-2016-02-18

TROUBLE

Hold onto your hats, Ladies and Gentlemen.

FYI: The Fed Funds Rate is the rate charged banks to borrow money.  The banks in turn charge us 16% to 23% on credit cards for the use of that money.  Ouch!

If you want a better deal involving 6% and no banks, see my website.

https://michaelekelley.com/tag/crowdfunding/

SOLUTION

https://michaelekelley.com/2015/03/27/the-kelley-monetary-policy-rule/

[Thanks to Tyler Durden for the abnormal idea.  Data courtesy of Federal Reserve Economic Data, FRED]

Updated 02/18/2016

Federal Reserve Can Create Jobs

THE FED has increasing employment as part of its charter. Yes, inflation is not the only goal in the charter.

underinvestment As this chart shows,US businesses are NOT INVESTING in capital for the future and consequently few new jobs are being created.

The Center for American Progress (americanprogress.org) has recommended creating a NATIONAL INFRASTRUCTURE BANK to fix our crumbling national infrastructure.

THE FED can use the LENDER OF LAST RESORT powers which allow lending to any institution including states and cities not just the financial institutions which are only using the loans to pump up the stock market.  THE FED could loan to the NATIONAL INFRASTRUCTURE BANK.

States and cities could use the loans for infrastructure which would CREATE JOBS similar to the Civilian Conservation Corps.  For example the Fed could have used these powers to bail out Detroit.

Read about it on wikipedia:

http://en.wikipedia.org/wiki/Federal_Reserve_System#Lender_of_last_resort

Thanks