Hudson: QE, here and there

[don]

Michael Hudson is a distinguished research professor of economics at the University of Missouri-Kansas City. His two newest books are The Bubble and Beyond and Finance Capitalism and Its Discontents. His upcoming book is titled Killing the Host: How Financial Parasites and Debt Bondage Destroy the Global Economy.

[don]

Re: Hudson: QE, here and there

Samuel Beckett Does the US Federal Reserve




(from Jesse's Cafe Americain)

"To find a form that accommodates the mess, that is the task of the artist now..."


Samuel Beckett

+1

[santafe2]

Re: Hudson: QE, here and there

"Let's go." "We can't." "Why not?" "We're waiting for the rate hike."
--- or ---
"Nothing happens. No rate hike comes, no rate hike goes. It's awful."

[don]

Re: Hudson: QE, here and there

"Let's go." "We can't." "Why not?" "We're waiting for the rate hike."
--- or ---
"Nothing happens. No rate hike comes, no rate hike goes. It's awful."

Well done!

[don]

Re: Hudson: QE, here and there

The Fed not only blinked today. They were twitching like someone afflicted with Tourette's syndrome.

The reasons are pretty clear.

The Fed had to take out the word patient today, or lose all credibility, and risk scaring the markets back into reality.

As I pointed out earlier today, in the assessment of an agency in the Treasury, the markets are at a two sigma level of potential volatility, ie like 'quicksilver.'

And of course, as is apparent to anyone who actually reads anything with a critical eye, the real economy is wallowing all over the place.

Finally, the recent moves by most of the rest of the world's central Banks have been to fully engage in the currency war by cheapening their currencies. The Fed would have looked like flaming idiots if they had raised rates today, given all the weak economic factors, the exceptionally low interest rates because of inbound capital flows from abroad in search of yield and safety, and the subsequent undue strength of the dollar that was already stifling exports and manufacturing.

So the Fed did the only thing it could do. It took out patient, and gave plenty of signals that they would not be raising rates anytime soon.

They also took metrics like the unemployment figure off the table. They have bought into Stanley Fischer's proposal that the Fed must resume the cloak of 'mystery' in its policy actions in order to be able to more effectively manipulate markets to achieve its policy ends.

I will say that I think this mystery is going to extend mostly to the public. I believe that they will be keeping the biggest insiders very informed through a variety of side and back channels. The better to eat you with, my dear. Pity the small players and investors in these markets.

Gold and silver took off like a scalded cat as the dollar dumped. The only surprise I had was that we did not test resistance around 1185. But who can predict the movements in these paper markets?

Nevertheless, the Fed has just tipped its cap, and bent its knee, and acknowledged that they too are in the currency war. Like so many other things they have screwed up they cannot fully admit it. They are caught, like most of the world's bankers and financiers, in a credibility trap.

Gold and silver will ultimately prove to be the last resort in a global game of 'beggar thy neighbor,' no matter how much fog and mystery the money masters care to distribute to better mask their intentions.

So as I have done for so long, I get right, sit tight, and hunker down while the great currency game plays itself out on the global stage.

Have a pleasant evening.

there is no currency wars, only casualties . . . .


Complete Currency Carnage...


As The Dollar flash-crashed...




It wasn't just the FOMC move - this something more right after the bell


led by JPY and EUR... 2 big figure collapse in JPY!!! 400 pips in EUR!!!!


And Swissy the biggest move of all...


Charts: Bloomberg

[gwynedd1]

Re: Hudson: QE, here and there

I have simply abandoned the idea that the monetary policy can do anything more than influence short term cyclical sentiment. I believe WII has placed a fog over a secular reality that the currency of a large and powerful state tends to bias towards deflation. Estates enlarge and dollars don't circulate because they ultimately wind up in the hand of a saver who is just as happy to keep that as a zero nominal yield precious medal. Only when the regime fails is there a possibility of a large transfer of wealth such that a significant portion of wealth is shifted to those who tend to spend these instruments. Billionaires buying something from other billionaires isn't going to cause any of it to circulate. Without WWII, I'd have to say the Great Depression would never have ended. Only a large scale public expenditure will ever really cause inflationary pressure as a financial policy, leaving collapse of the regime and foreign debt as other ways of creating a new cycle. Dollars are doing nothing but forming sedimentary rock at the river bottom at this point.

So until then I expect nothing but what we have already seen in Japan with 30 years worth of warning. The Euro is of course following suit. Fiscal policy is the only thing I even bother to consider when it come to public finance. Privately its the amount of equity that can be used to secure credit under the prevailing conditions. This is of course why sub prime was nothing but a longer plank on the same process. They run out even of fictitious equity at some point.

[don]

Re: Hudson: QE, here and there

Without WWII, I'd have to say the Great Depression would never have ended.

Even with it, 9 out of 10 economists expected it to return after its conclusion. Without the Cold War one wonders if the Marshall Plan and general European rebuilding would have been nearly as robust, not to mention Korea and Japan's resurgence. It was a unique confluence of historical forces, not only impossible to replicate but foolish to attempt.

[gwynedd1]

Re: Hudson: QE, here and there

Even with it, 9 out of 10 economists expected it to return after its conclusion. Without the Cold War one wonders if the Marshall Plan and general European rebuilding would have been nearly as robust, not to mention Korea and Japan's resurgence. It was a unique confluence of historical forces, not only impossible to replicate but foolish to attempt.

Also recall that both Germany and Japan were freed of their own rentiers. All debt was wiped out. That meant lots of equity that was not saturated with debt. So there is no surprise on the rapid growth as well as no surprise on why it ended. While there is a theoretical peaceful solution to this , it failed politically. So we wait for a real catastrophe .


People only seem content to compete on the privileges they can acquire. Is there a single special interest group that would not become his enemy today as back then even though as we now well know they were on the precipice of their doom? Its like cats and dogs imaging that only they would sneak over to the other's bowl.


http://en.chateauversailles.fr/histo...jacques-turgot

[don]

Re: Hudson: QE, here and there

Also recall that both Germany and Japan were freed of their own rentiers. All debt was wiped out. That meant lots of equity that was not saturated with debt. So there is no surprise on the rapid growth as well as no surprise on why it ended. Its like cats and dogs imaging that only they would sneak over to the other's bowl.

The rebuilding of America's competitors also had the significant advantage of cutting edge technology, if applicable. They were not burdened with aging plants, their's being wiped out in the war. By the early 70s they were both significant competitors once again and the inevitable crisis of over-production was well underway. Neither massive advertising nor a war economy could thwart this dilemma. Financialization was the option chosen, wedded to military dominance.

[aaron]

Re: Hudson: QE, here and there

The first rate increase will happen as they have trained us to believe, in June. However...

They will announce the increase as such:

In response to improved conditions in the U.S economy, we are increasing the discount rate by 0.05 percent today.

It will be announced at a time to cause some shock and awe; also this will give the right people a chance to profit.

Buried down there, for the 3% of the population who actually read/care and possibly notice decimal points...

The Federal Reserve will increase the rate from between zero and 0.25% all the way up to 0.05% and 0.30%, for an average increase of 25%!! (This will be the headlines from the second wave of talking heads)

- appearance of tightening
- more bank profits
- $USD will stop appreciating as fast
- Bond prices will stabilize

The mistake after the Great Depression, as I recall from all the discussions on iTulip, was that the FED/Treasury began shrinking the money supply too fast. Note: This happened about around 8 years after the crash of '29. The current depression started in 2007. They've read the Bernanke playbook, and I am sure they do not want to repeat history, right?

Tightening will happen in "large" increases of 1/20th of 1%, or even less. This will probably get us to 5% in another 10 years.

[don]

Re: Hudson: QE, here and there

This will probably get us to 5% in another 10 years.

Coinciding with the complete exhaustion of middle-class savings . . . .