• 12 hours How Blockchain Tech Could Make Mergers And Acquisitions More Efficient
  • 17 hours America’s Shortage Of This Metal Keeps Trump Up At Night
  • 1 day Bidet Bonanza: Defying The Toilet Paper Shortage
  • 2 days U.S. Auto Sales Fall By 75%
  • 2 days Violating Quarantine? Big Brother Is Watching
  • 3 days Does Gold Still Have Some Room To Run?
  • 3 days Major Acquisition Gives The World’s First Green Ride-Share Another Edge
  • 3 days U.S. Pushes For Digital Currency For Immediate Stimulus
  • 4 days The Impossible Challenges Created By Growing Population
  • 4 days Gold Skyrockets After Fed Pledges "Unlimited" Cash To Boost Economy
  • 4 days World’s Richest Lose $1 Trillion In Stock Market Rout
  • 5 days Gas Stations Shut Down In Venezuela As Coronavirus Crisis Intensifies
  • 5 days The Best And Worse Case Scenario For The U.S. Stock Market
  • 5 days 3 Industries Soaring During The Coronavirus Crisis
  • 6 days The Key To Commercial Hydrogen
  • 6 days Gold Still Beating Much Of The Market Despite Sell-Off
  • 7 days Gold Miners Struggle With COVID-19 Fallout
  • 8 days The Dollar Reigns Supreme In Times Of Crisis
  • 8 days The Most Exciting Green Startups To Watch In 2020
  • 8 days 5 Ways To Beat The Coronavirus Quarantine Doldrums
What's Behind The Global EV Sales Slowdown?

What's Behind The Global EV Sales Slowdown?

An economic slowdown in many…

How The Ultra-Wealthy Are Using Art To Dodge Taxes

How The Ultra-Wealthy Are Using Art To Dodge Taxes

More freeports open around the…

  1. Home
  2. Markets
  3. Other

Brave New World

Forty months and thirteen Federal Funds rate cuts later and all we've managed to accomplish is sustenance of unsustainable and unprecedented "Credit Bubbles".

US M3 money stock has been inflated only to circulate widening external distortions to out Current Account deficit.

M3's rate of change is telling an increasingly disturbing story:

The Federal Reserve began backpedaling prior to 2002, regardless of the aggregate growth implied by M3, the rate of change makes clear the Fed's recognition of policy failures. Even after having patted themselves on the back, it's clear several events should have taken place were the fed not drinking from it's own punch bowl.

The Fed would be:

 - selling bonds

 - raising the reserve ratio

 - raising the discount rate

They are committing he polar opposite of the above.

Aggressive interest rate reduction and credit/debt expansion policies adjacent to unprecedented growth in M3 has ONLY succeeded in blowing a massive credit bubble of global proportions and none of the above is about to change in any meaningful way unitl August.

Changes in the money supply, in turn, affect interest rates, but the rate of change the reveals the delicate balance. When the Fed sells securities and decreases money supply, there is upward pressure on the federal funds rate, yet the Federal Reserve's own balance sheet has grown precipitously over the course of these studies.

In order to sustain this fiasco, Doug Noland's "Tightening Lite" thesis appears plausible:

"The Credit-induced "reflationary" boom and attendant inflationary forces (building for months) have finally captured the attention of the bond market. Apparently, the bond market now cares because it assumes the Fed cares. How much the Fed "cares," at this juncture, is unclear. There is still no sign that a rate increase is imminent, with Fed officials seeming to signal this week that they would like to remain patient. I have no doubt they hope to remain patient."

Patience has manifested itself in the chart below, we have flat lined on the rate of change and any extraordinary adjustment will most likely cause ill effects:

The Federal Reserve will continue to buy bonds and at minimum, maintain the reserve ratio while perhaps "tweaking" the discount rate.

We can expect further deterioration of the Economic Environment for the foreseeable future.

The Fed will merely begin to accelerate it's "visible" hand going forward. Desperate times require desperate measures.

Back to homepage

Leave a comment

Leave a comment