• 260 days Will The ECB Continue To Hike Rates?
  • 261 days Forbes: Aramco Remains Largest Company In The Middle East
  • 262 days Caltech Scientists Succesfully Beam Back Solar Power From Space
  • 662 days Could Crypto Overtake Traditional Investment?
  • 667 days Americans Still Quitting Jobs At Record Pace
  • 669 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 672 days Is The Dollar Too Strong?
  • 672 days Big Tech Disappoints Investors on Earnings Calls
  • 673 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 675 days China Is Quietly Trying To Distance Itself From Russia
  • 675 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 679 days Crypto Investors Won Big In 2021
  • 679 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 680 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 682 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 683 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 686 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 687 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 687 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 689 days Are NFTs About To Take Over Gaming?
Tesla Struggles To Compete In European Market

Tesla Struggles To Compete In European Market

Tesla continues to catch the…

How Millennials Are Reshaping Real Estate

How Millennials Are Reshaping Real Estate

The real estate market is…

Is The Bull Market On Its Last Legs?

Is The Bull Market On Its Last Legs?

This aging bull market may…

  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