Fed's Plosser says policy must be preemptive
ROCHESTER, New York (Reuters) - The U.S. Federal Reserve must be prepared to raise interest rates if needed before the jobless rate has fallen to an "acceptable level", or risk losing its inflation-fighting credibility, a senior Fed official said on Tuesday.
I guess someone at the Fed just figured out the unintended consequences of telling us that interest rates would be kept near zero for many years. Time is beginning to accelerate it seems.
The real interest rate on the 5-Year TIPS is now just 0.10%. Those betting on its never ending decline are now just 0.1% away from the floor. The ceiling is who knows where though.
"Looking ahead, I see an economy that will be growing over the next two years, which means real interest rates will be rising," he told an economic seminar in Rochester, New York.
That's one optimistic reason real interest rates could rise. Here are some pessimistic reasons that might work as well.
1. Another deflationary downturn appears (perhaps a butterfly flaps its wings in some emerging economy).
2. Investors start believing in the never ending falling dollar story and decide to ditch all US Dollar denominated assets in response.
3. Investors start thinking that the US might not be able to afford paying its debt long-term and therefore start requiring a premium to cover the risk.
4. The US Government simply issues too much debt and demand for it can no longer keep up.
5. The euro crashes and a great unwind begins. Very few even entertain the thought. The euro only goes up. Right?
Nutcracker Sales Plunge as Euro’s Climb Hurts German Exports
She said Stollen fruitcake that sold for $20 dollars a decade ago was now selling for $40. “It’s the exchange rate and shipping costs that are causing the problem.”
People will actually pay $40 for a fruitcake? Who knew!
Weak Dollar Has European Shoppers Flocking To Americans, for Deals on European Products
Grossman comments: “It's almost like a cartoon you’d read in 'The New Yorker', we're selling Rolex Watches back to The Swiss, sending Hublot Watches to Italy, and any IWC piece ordered, you can bet is on it's way back to Germany”.
That is just beyond messed up!
Report boosts Democrats' second U.S. stimulus bill
ReplyDeletehttp://tinyurl.com/yl3895d
Look at the bright side Mark, we'll have cement lined river bottoms and bridges to no where just like Japan does. Not sure we'll see high speed rail and robotics though unless it's worth a few campaign kick backs.
It must be a great time to be a politician, Bernanke bucks raining down from the heavens and you get to pass them out like candy.
Kevin
Mark, I am not surprised!!
ReplyDeleteRound trip from Montreal to Los Angeles is ~$790. Round trip from Los Angeles to Montreal is ~$480.
I tried this with multiple dates with similar results... Canadians are "used" to pay more for the flight. The Canadian gained relative to the USD, but prices in Canada did not change.
A 3-series BMW is ~20% cheaper in the US when compared to Canada.
My belief is that it is part of US monetary strategy to keep the USD low (assisted with MSM dollar collpse stories, and other ally countries (china, india..) buying gold etc...). with the dollar low, we all know that exports are encouraged etc... Once the US economy picks up due to exports, if ever, the US dollar will soar, market will flatten and gold will collapse.
my 2 cents..
for verification the other day, I got "pooking"!
Kevin,
ReplyDeleteLook at the bright side? I just wish the light at the end of the tunnel wasn't one of Warren Buffett's oncoming trains! ;)
Remy,
The They-Are-Used-To-Paying-Higher-Prices theory seems plausible to me. What else could explain Europeans buying European watches in America?
If this becomes a trend, I'm picturing a billion Chinese buying Made in China toasters at my local Wal-Mart, lol.
Stag,
ReplyDelete3. Investors start thinking that the US might not be able to afford paying its debt long-term
I think we can stop worrying about item 3. The best and the brightest are at it again!
http://www.ft.com/cms/s/0/0929abe8-dec0-11de-adff-00144feab49a.html
Companies are AGAIN using new debt to pay dividens! What a great idea. Why did we ever stop? Seriously. Why pay dividends out of actual earnings? There's no need.
It makes me wonder what would happen if nobody worked and everyone just borrowed
money? Everyone could enjoy a life of wealth, leisure and privilege!
We have two seperate economies. One is the productive economy which
produces actual goods and is capitalistic and competitive. The other is the finance eCONomy which increasingly
produces ponzi debt which is used to pay interest on the previously issued ponzi debt. Our credit/money system has been so thoroughly polluted with ponzi debt that the economic justifications behind the new ponzi debt are now patently
absurd.
I fear the ponzi debt pyramid will all come crashing down. I was hoping for a slow decline like the Roman Empire, but I have my doubts.
mab,
ReplyDeleteFrom your link...
"The reappearance of such instruments in recent weeks has stirred concerns that government efforts to stimulate lending are having unintended consequences..."
Government efforts are having unintended consequences? I'm shocked! Shocked I tell you!
Your link reminds me of utility dividends. I don't know if it is still true, but in the past quite a few utilities were showing decent dividend increases by gradually increasing the payout ratio. That "game" pretty much ends at 100% in theory. In practice the "game" can go on a bit longer thanks to the miraculous lifeblood of debt though.
Funny how little attention debt is given as long as interest rates can continue to fall. In fact, if we could guarantee rates would stay at zero it might actually be a good time to borrow an infinite amount of money and do a hostile takeover of every publicly traded company in the world while simultaneously buying all the world's real estate and natural resources. Mwuhahaha!
Stag,
ReplyDeleteThe CONcept of banks lending private equity firms money in order to allow private equity firms to pay themselves dividends highlights just how desperate our sham sytem is for credit growth.
I mean, if banks will lend money so borrowers can pay themselves, you'd think it would be a certainty that banks would lend money so that borrowers can pay back old loans.
It's a perpetual wealth machine. What could go wrong?
I thought the debt ponzi scheme had reached it's limits after Greenspan's 1% interest rates and the housing bubble. It's starting to look like we might have another round of stupidity left in the system. I'm sure there will be weird distortions at the zero boundary.
mab,
ReplyDelete"It's starting to look like we might have another round of stupidity left in the system."
The next round is on the house. Cheers!