Washington politicians are pointing the U.S. economy straight into a liquidity trap and instead of a bright economic future, the U.S. is looking at years of high unemployment, weak GDP growth and the possibility of widespread deflation. [read full story]
Category Archive: Monetary Policy
The Federal Reserve is putting its future at risk by ignoring its own likely financial results when it raises interest rates. Simply put, rising interest rates will hurt the Fed by making interest costs higher and asset values lower.
While the Fed isn’t like any other bank in America, it is still subject to the immutable rules of math and interest rate risk. If the Fed starts to earn less on its investments than it pays in interest on its deposits, it will lose money.
That is exactly what the Fed is facing when interest rates rise — that it will pay more for deposits than it earns on its investments.
Taken in isolation the Fed’s balance sheet looks more like an overleveraged hedge fund than a shining example of prudent risk management. The Fed has almost no capital to back up its big macro bet on interest rates and the shape of the yield curve. Higher interest rates or an inverted yield curve where long-term assets yield less than short-term assets will cause problems. [read full story]
At separate news conferences Democratic and Republican leaders accused each other of political opportunism after Congress again failed to raise the debt ceiling and banks refused the President’s request to fund a government bailout.
As a result, the federal government shutdown that began in 2011 will continue for another year. [read full story]
Despite the quick run up in gasoline prices, the U.S. economy isn’t about to be eaten by the inflation monster. While it is a good bet that sometime in the next few years the Fed will have to deal with rising inflation, now isn’t the time to change monetary policy in an effort to slay […] [read full story]
There is a lot of speculation that the dollar is losing ground to the Chinese renminbi and that sooner or later the Fed will share the global stage with Chinese monetary authorities. Chinese government officials and Jeremiad western economic forecasters who claim that the renminbi will replace the dollar as the world’s premier currency certainly […] [read full story]
The U.S. economy has a long way to go before the economic recovery will be either sustainable or robust. Monetary indicators don’t look good and are once again getting worse. I am concerned that the financial system hasn’t recovered enough for the Federal Reserve to withdraw from its program of quantitative easing. While most of the […] [read full story]