It is being said today’s FOMC announcement is “the most
important of Yellen’s tenure”, I could not disagree more. In the past I
have written pieces regarding the potential announcements by the FOMC
and come to the conclusion “what can they possibly say?”. This is more
true now, Janet Yellen et al cannot “say” anything of substance because
they cannot “do” anything of substance. The Fed backed themselves into a
corner of their own making several years ago, I believe it is only a
matter of time before the markets “test” them.
What options does the Fed have? Can they raise interest
rates at all? Can they tighten credit at all? Can they really go the
other way and institute truly negative interest rates? The answers are
all NO, they are “frozen” of their own making and have only one option
(really two in tandem). The Fed can only remain in place with interest
rates nonexistent and must continually create (fund) debt and grow money
supply while a Treasury arm, the PPT must guide, massage and dampen
volatility of markets …ALL markets. The only thing currently being
discussed is “when” will the Fed tighten? I would ask, when will QE 4
be instituted? The answer of course is when the markets seriously begin
to implode again which may not even be more than a calendar month or
two away.
I am sure a part of their statement will include oil and
energy prices. This is a market they cannot heal with monetary policy.
The volatility has already occurred and the dead bodies already exist
though we don’t yet know who they are. The dilemma the Fed has is they
have no tools left other than outright support once markets begin to
collapse. Their QE policies have already been seen as ineffective at
supporting the real economy other than stabilizing decline. My question
is this, when QE 4 becomes a necessity, will the markets “buy it” or
will the phrase “three strikes and your out” come into play? What once
worked to turn the real economy from contraction to recovery to an
actual growth phase now has no power. The Fed only has an accelerator
so to speak, the brake pedal is off limits. I have written many times
on “velocity” and why it continues to decline. This is the sticking
point, the money they create is being hoarded by the banks and not
reaching Main St.
No comments:
Post a Comment