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Posts Tagged ‘fed’

U.S. Fed Raises Rates For First Time In Nine Years – -Federal Reserve Ends Zero-Interest Rate Policy

December 17th, 2015 Comments off

With the announcement by the Federal Reserve that it is raising its interest rate by 25 basis points, a policy of virtual zero-interest rates maintained by America’s central bank–and imitated by other central banks worldwide since the global economic and financial crises that arose in 2008–has officially come to an end. The minor rate increase of 0.25 percent is the first time since 2006 that the Fed has upped its benchmark interest rate.

The end of the extraordinary and long-lasting  monetary easing aggressively maintained by the Fed for nine-years thus  comes to an end, the justification being that the policy “worked,” the evidence being a very minor rise on forecasted future GDP growth prospects for the American economy. The decision by the Fed to raise its interest rate has supposedly been priced in by the equity markets for probably the last two years, at least. Nevertheless, the continued weakness in the global economy may provide a lesson in how fragile it really is, once the monetary pump-priming of zero-interest  rates is gone.

 

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Sheldon Filger's photo.

Fed Chair Yellen Muses Rate Increase

March 28th, 2015 Comments off

After a decade and a half of very low interests rates–and virtually zero interest rates since the onset of the global economic crisis in 2008, the U.S. Federal Reserve is increasing the rhetoric regarding what everyone knows is inevitable: rate increases.  The most recent comments by the Fed chair, Janet Yellen, point in that direction.

Yellen couched her words carefully, hinting that the rate increases will be slow and gradual, occurring in small increments over a period of several years. But the message is clear; monetary chicanery has run its course as an economic palliative. The distortions in the economy created by artificially low interest rates cannot be sustained forever.  The problem is, what bullets will be left to policymakers when the next recession strikes?

 

If Hillary Clinton runs for President of the United States  in 2016, see the video about the book that warned back in 2008 what a second Clinton presidency would mean for the USA:

 

CLICK ON IMAGE TO VIEW VIDEO

Hillary Clinton Nude

Hillary Clinton Nude

Excellent Critique Of U.S. Federal Reserve And Ben Bernanke By Israeli Economist Dr. Yishai Ashlag

September 24th, 2013 Comments off

Those who regularly read my blog, either on the GlobalEconomciCrisis.com website or my blogs pieces that are published in the Huffington Post, know that to say I am a critique of Ben Bernanke and his loose monetary policies at the U.S. Federal Reserve is an understatement.  Though most mainstream economists believe that Bernanke is a hero of the global economic crisis, a supposed savior from liquidity doom, there are a few excellent economists who from time to time offer incisive critiques on the Fed’s policies under Ben Bernanke.

Recently, I read an outstanding opinion piece on the madness of Ben Bernanke’s policies, and why it is bad for  other countries, including his own, to march in lock-step with the Fed’s easy money policies. Dr. Yishai Ashlag, an economist who writes for Israel’s leading business publication, “Globes,” has a piece entitled, “Interest rates should be raised not cut.” According to Ashlag’s take on Ben Bernanke,  “his policies are bad for the U.S. and bad for the world.” His explanation is well worth reading; here is the link to Dr. Ashlag’s piece on the “Globes” website:

http://www.globes.co.il/serveen/globes/docview.asp?did=1000880933&fid=4111

If Hillary Clinton runs for President of the United States  in 2016, see the video about the book that warned back in 2008 what a second Clinton presidency would mean for the USA:

Hillary Clinton Nude

HILLARY CLINTON NUDE

Hillary Clinton Nude

WALL STREET KILLS--A CHILLING NOVEL ABOUT WALL STREET GREED GONE MAD

To view the official trailer YouTube video for “Wall Street Kills,” click image below:

In a world dominated by high finance, how far would Wall Streetgo in search of profits? In Sheldon Filger’s terrifying novel about money, sex and murder, Wall Street has no limits. “Wall Street Kills” is the ultimate thriller about greed gone mad. Read “Wall Street Kills” and blow your mind.

Nouriel Roubini Warns That the U.S. Federal Reserve Is Constructing a “Monster Bubble.”

November 3rd, 2009 Comments off

 

In the Financial Times Professor Roubini wrote a thoughtful and frightening piece on the implications of the U.S. dollar’s sinking value and its increasing role in the global carry trade. Given Nouriel Roubini’s track record  in offering a timely warning on the collapse of the subprime mortgage  bubble, his latest red flag should be looked at very closely.

In essence, the loose monetary policies of the Fed have  poured a tidal wave of liquidity into the world, in the form of U.S. dollars being offered at effectively zero interest rates while simultaneously being devalued. This explains the explosive role the American dollar is exercising on the carry trade. As Roubini points out, speculators can borrow cheap dollars at effectively negative interest rates, and plough this cheap currency into higher yielding assets available in foreign exchange. What Professor Roubini describes as the “mother of all carry trades” is building a global speculative bubble of vast proportions, and in a manner that is utterly unsustainable.

Roubini closes his sober article in the Financial Times with the following chilling warning:

“This unravelling may not occur for a while, as easy money and excessive global liquidity can push asset prices higher for a while. But the longer and bigger the carry trades and the larger the asset bubble, the bigger will be the ensuing asset bubble crash. The Fed and other policymakers seem unaware of the monster bubble they are creating. The longer they remain blind, the harder the markets will fall.”

 

 

* Global Economic Forecast 2010-2015: Recession Into Depression, now available. More information at:

http://www.createspace.com/3403422

 

For More Information on “Global Economic Forecast 2010-2015” please go to the homepage of our website, http://www.globaleconomiccrisis.com 

 

 

Ben Bernanke and his Terrifying Toolkit

May 6th, 2009 Comments off
In his testimony before the congressional Joint Economic Committee, Federal Reserve Chairman Ben Bernanke repeated an earlier prediction that the severe recession in the U.S. economy would end in the current year. Typically, Bernanke offered all kinds of qualifications, just so he would not be seen as too optimistic, thereby eroding all credibility. Nevertheless, the Fed Chairman is now firmly on record as forecasting that the worst impact of the Global Economic Crisis upon the American economy will recede in 2009. And as the foremost expert on monetary policy and economics in all the land, this self-proclaimed genius (as witnessed on the CBS 60 Minutes propaganda segment on Bernanke) is someone we should all pay attention to; that goes for every parsed word flowing from his lips.
Before becoming overly indulgent in the gospel of Ben Bernanke, let us take a brief trip down memory lane, to the year 2007. Then, too, the Fed Chairman testified before the Joint Economic Committee. And this is what he had to say, just as the first inklings of a subprime mortgage crisis were percolating. Bernanke, when asked about the ramifications of this threatening disaster to the overall health of the nation’s economy, replied that it was “likely to be contained.”

Likely to be contained? No economic forecast has ever been so catastrophically flawed as Ben Bernanke’s utterance before the Joint Economic Committee. And that was by no means the only wrong prediction uttered by Ben Bernanke, as the subprime crisis morphed into a full-blown financial meltdown, leading to the Global Economic Crisis. The track record established by Ben Bernanke in predicting the consequences of an unfolding economic crisis of unprecedented global ferocity has been downright calamitous. Yet this same deficient analyzer of economic phenomena remains as chairman of the Fed, with unchallenged powers to set monetary policy.

As the subprime crisis became something much worse, Bernanke adopted a slightly different tack in his public posture. Rather than rosy forecasts, he boasted about the lavish toolkit that the Fed possessed. “We have many tools in our toolkit,” boasted Bernanke on more than occasion, cheerfully promising to use all the tools he felt were necessary.

The vocabulary that the Fed Chairman has succumbed to I find absolutely fascinating. Massive monetary decisions that are risky in the extreme, and will likely have intergenerational consequences, become mere “tools.” The consequential becomes the ubiquitous.

Bernanke and the Federal Reserve have been in panic mode, as the financial system became unglued. Massive quantitative easing has flooded fiat liquidity into America’s battered economy, buying a short-term respite at best, and at the cost of hyperinflation down the road. Most troubling, and often in total secrecy, the Fed has been bailing out Wall Street, above and beyond the TARP program being managed by the Treasury Department. Since last September and the bankruptcy of Lehman Brothers, the Fed’s balance sheet has doubled to more than $2 trillion. Most troubling is the quality of that balance sheet, which has historically been composed primarily of Treasuries. Now, however, at least 75% of the Federal Reserve’s balance is in the form of questionable assets, such as mortgage backed securities. In effect, Ben Bernanke has transformed the Federal Reserve’s balance sheet into the nation’s largest toxic dump. It may be only a matter of time before the Fed approaches Congress-and U.S. taxpayers- for a bailout of its own.

While Bernanke may still inspire confidence from President Obama, he frankly scares the hell out of me. Isn’t it time we took away the toolkit from this disaster-prone Fed Chairman, before it is too late?

For More Information on “Global Economic Forecast 2010-2015” please go to the homepage of our website, http://www.globaleconomiccrisis.com 

 

 

 

 

 

Dire Warning On U.K. Deficits; What Are The Implications For The U.S. Debt Crisis?

March 27th, 2009 Comments off
As U.K. Prime Minister Gordon Brown goes globetrotting on his mission to spread the gospel of massive borrowing by governments to fund stimulus spending in response to the Global Economic Crisis, setting the stage for the G20 Summit in London, the governor of the Bank of England, Mervyn King, was preaching a different message to members of Parliament at a Treasury Committee meeting. The Bank of England is the central bank of the U.K., in effect the British equivalent of the Federal Reserve in the United States. While accepting the traditional Keynesian view that in times of economic downturn spending must be increased by governments despite reduced tax revenues, creating inevitable budgetary deficits, King went on to tell the parliamentarians that, “Given how big those deficits are, I think it would be sensible to be cautious about going further in using discretionary measures to expand the size of those deficits…I think the fiscal position in the U.K. is not one where we could say, ‘well, why don’t we just engage in another significant round of fiscal expansion’.”

In contrast with Fed Chairman Ben Bernanke, the Bank of England governor is watching the accumulating public debt with deep concern, instead of advocating massive quantitative easing, as it is being executed in the U.S. by the Federal Reserve. Mervyn King is clearly worried about the long-term implications of the growing national debt driven by fiscal imbalances, recognizing the future and destabilizing dangers of hyperinflation and national insolvency. Carefully worded and diplomatic as his message was, King’s warning is a clear message to the British political establishment: the current budgetary trajectory is unsustainable.

How bad is the U.K.’s fiscal posture? The true answer is obscured by the accounting rules being applied by the British government, which has assumed the costs and risks of bailing out the U.K.’s largely insolvent banking sector. By some calculations, the loans and guarantees have created a potential public liability of approximately $700 billion that is not reflected in official public debt figures, which stand at about one trillion dollars, or 47% of the nation’s GDP.

In comparison, there are no warnings about massive U.S. budgetary deficits that are being planned by politicians for the next decade, far beyond the three-year time limit King recommended to the MPs on the Treasury Committee. Yet, the United States has an even more daunting debt problem than the United Kingdom. At present, the national debt of the United States exceeds $11 trillion, equivalent to 78% of GDP, a much higher figure than during the New Deal period of the Great Depression of the 1930s. With U.S. GDP projected to shrink in the current fiscal year while deficits add at least $2 trillion to the national debt (my estimate), the ratio of public debt will rise to a point approaching the entire GDP, perhaps within the next five years.

There is another aspect to the U.S. public debt crisis. In 2008, the Federal government spent $412 billion on interest payments for servicing of the national debt. Currently, interest rates are at record lows; the U.S. Treasury has even been able to auction off short-term Treasuries at zero interest rates. However, the inevitable erosion of the dollar’s intrinsic value and changing market conditions will drive up interest rates. That, in combination with the rapid growth in the public debt, could mean interest payments soon becoming the largest proportion of Federal spending, even surpassing military outlays. In a few years, debt-servicing costs may exceed one trillion dollars annually.

As if things were not bad enough, the U.S. government has made massive commitments in terms of direct borrowing and backstop guarantees in the trillions of dollars for bailing out the financial, banking, mortgage and even industrial sectors. Except for the TARP program, these massive fiscal obligations are off the books, but may very well come due, at the expense of the already over-leveraged U.S. taxpayers.

Mervyn King has displayed a rare example of candor and intellectual courage among the central bankers and politicians deciding our fate as the Global Economic Crisis intensifies. If only that same level of civic honesty could be replicated across the Atlantic.

 

 

 

 

 

IMF Forecasts First Global Economic Contraction In 60 Years

March 19th, 2009 Comments off
The International Monetary Fund has joined the chorus of organizations and economic think tanks that have concluded that the Global Economic Crisis is unprecedented in its repercussions. In a report prepared in connection with the G20 Finance Ministers meeting held in London, the IMF offered an economic forecast saturated with gloom. For the first time in 60 years, the IMF report states, the entire global economy will experience a net contraction. The current IMF estimate is negative growth in 2009 of between .5 and 1 %, compared to a forecast of only two months ago still projecting net global growth, though at anemic levels. Thus, the IMF mirrors a similar forecast issued by the World Bank only a few weeks ago.

There is not even a glimmer of optimism in the IMF forecast, except in the sense that some regions will contract at slower levels than others. Japan is projected to decline by 5.8 %, with lower but still shattering levels of economic contraction in the United States, the United Kingdom and Eurozone. Emerging markets, especially Eastern Europe, are assessed as being particularly vulnerable to the turbulence being unleashed by the Global Economic Crisis. “The risks are largest for emerging countries that rely on cross-border flows to finance current account deficits,” concludes the IMF in reference to the impact the global financial crisis and credit crunch have had on the debt-dependant economies of Eastern Europe.

Reading between the lines of the IMF forecast, it is clear that the contraction ratios would be even more severe, but are in effect being masked to a certain degree by so-called economic stimulus programs. In effect, future tax money is being borrowed to artificially create employment in the near term. However, the IMF report alludes to the challenges to be faced in 2010, when less stimulus spending is projected, especially in Europe. This is already a source of contention between the United States, which is currently projecting a deficit of 12% of her GDP, and the European Union where, in comparison, a much lower ratio is being allocated within the Eurozone. The UK, however, is forecast by the IMF to have attained a fiscal deficit in 2010 that will comprise 11% of her GDP, nearly the same percentage as is the case with the US federal budget.

With deficits soaring and projections of global economic contraction multiplying, the U.S. Federal Reserve has made its own unique contribution to the toxic brew being stirred in the midst of our worldwide economic catastrophe. As I have previously warned in my earlier blog comments regarding Ben Bernanke and quantitative easing, the Fed has now officially announced that it will fire up the printing presses and conjure out of thin air $1.2 trillion of freshly minted fiat currency, which it will utilize for purchasing Treasury bonds and mortgage-backed securities. This is an act of desperation, devoid of any long-term strategic framework. In a panic to achieve a short-term reversal of economic fortunes in the U.S., the all-powerful Federal Reserve has embarked upon an experiment in quantitative easing and government debt-monetization that will inevitably unleash the dangerous prospect of hyperinflation. Defenders of the Fed’s reckless gamble with America’s fiscal and monetary health will argue that currently deflation is a much greater danger than hyperinflation. This is accurate only in a very short-term time horizon. If anything, the Global Economic Crisis has shown how powerful financial and economic currents can be turned around on a dime. Last summer, the price of oil skyrocketed, reaching levels of nearly $150 per barrel, with serious financial analysts projecting a much higher price in the near future. Within a matter of weeks, the world witnessed a radical reversal in the price of oil and other commodities. I mention this as a warning that disastrous policy measures being enacted by the Fed can transform deflation into hyperinflation much more rapidly than can presently be envisioned.

Between news bulletins concerning the IMF and World Bank reports that are forecasting the most severe global economic contraction in 60 years, and the $1.2 trillion in make-believe money being manufactured by the Fed, it is inexplicable why major stock markets are undergoing a rally of sorts. Could this be the calm before the storm?

 

 

 

Will Timothy Geithner Destroy The U.S. Economy In Order To Save It?

February 10th, 2009 Comments off
The Global Economic Crisis evolved as a worldwide phenomenon, as major banks and financial institutions in virtually every significant economy became infected by toxic assets exported by the securitization engineers on Wall Street. Last October, the United States with its TARP, followed by major European countries including the UK, Germany and France injected previously unheard-of sums of borrowed money into their banks. This panic-driven injection of liquidity was sparked by the impending collapse of the global credit system.

Treasury departments and central banks far and near assured their publics that this speedy borrowing spree by the decision-makers had rescued the world’s financial system, thus serving the interests of the now heavily-leveraged taxpayer. Now, only three months later, it is clear that at a terrible financial cost, at most a short respite was purchased. The temporary lull in the LIBOR rate cannot, however, camouflage the essential truth; the major banks and financial institutions in many major economies, particularly in the United States and United Kingdom, are for all practical purposes insolvent.

A banking system that is insolvent is dysfunctional in the extreme. That is the core of the credit crunch that has now precipitated a Global Economic Crisis so egregiously destructive, it will likely exceed the Great Depression of the 1930s in its impact. This is why all the costly deficit spending on economic stimulus packages being enacted in the G7, BRIC and eurozone countries are doomed to failure. The key decision makers are aware of this conundrum, which is why they are frantically searching for a solution to the banking disaster that has frozen normal credit flows throughout the global economy.

The new U.S. Treasury Secretary, Timothy Geithner, postponed his speech on how the Obama administration intended to resolve the banking and credit crisis by 24 hours. Whatever solution he ultimately proposes it will probably, like TARP before it, be insufficient and require further interventions by the Treasury Department and the U.S. taxpayer. Indeed, dark clouds are obscuring an horrific reality; the American banking sector is insolvent to such an immense degree, it would in all likelihood require recapitalization at a level counted not in hundreds of billions, but rather trillions of dollars.

The paradox is that the U.S. economy, as with any other, cannot function without a solvent banking sector. At the same time, it cannot afford the cost of salvaging its banks. Consider what Professor Nouriel Roubini said in a recent interview with the Financial Times: “In many countries the banks may be too big to fail but also too big to save, as the fiscal/financial resources of the sovereign may not be large enough to rescue such large insolvencies in the financial system.”

Thus, the United States created a banking system with large institutions that are too big to fail, due to the systemic risk such a collapse would impose on the national and even global economy. It compounded this roll of the dice by removing any coherent regulatory regimes, instead trusting in the “self-correcting” character of the unregulated marketplace, which encouraged risky behaviors, otherwise known as “innovation,” leading to the creation of unsustainable asset bubbles.

Geithner may try to sugar-coat what in effect will be a TARP II, knowing that the public and its congressional representatives will be reluctant to mortgage the financial future of their children for the sake of another bank bailout. However, no matter how the Obama administration packages its own TARP II bank rescue effort, it is increasingly likely that the foreign credit markets the United States relies on for financing its grandiose deficit spending will simply lack the capacity to loan all the money needed to recapitalize America’s banks.

In the event the credit markets are unable to finance the rescue of the U.S. banking sector, then the lender of last resort will undoubtedly be the Federal Reserve. By resorting to quantitative easing, the Fed may purchase Treasury bills with bank notes it simply generates off of its printing press. In essence this is legal counterfeiting, conjuring up fiat money out of thin air. It may lead to the recapitalization of the banks, on paper. But the net cost will be the destruction of the U.S. dollar as the world’s reserve currency, along with the displacement of the current trend of deflation with a virulent and potentially uncontrollable outbreak of hyperinflation.

The bank rescue mission the U.S. Treasury Department and the Fed are currently embarked upon reminds me of what a U.S. Army spokesman once told journalists during the Vietnam War: “We had to destroy the village in order to save it.”

I fear that this same reasoning may be at work among the policy-makers in Washington, through the enactment of decisions that will destroy what remains of the U.S. economy in order to bailout the “too big to fail banks.” In this instance, however, it is not a village, but the whole global economy that hangs precariously in the balance.

 

America And Economic Collapse: Will Obama Share the Fate Of Gorbachev?

December 28th, 2008 Comments off
An economic crisis can destroy an empire. It was financial bankruptcy that led to the liquidation of the British Empire. More recently, economic stagnation and paralysis led to the demise of the once-powerful Soviet Union. Will the global economic crisis sink the United States, and end American hegemony? The success or failure of the incoming Obama presidency will determine the ultimate answer to this millennial question.

When the global financial crisis first arose, leading to a worldwide credit crunch, it became apparent that the economic policies of George W. Bush would be the defining issue of the 2008 presidential campaign, spelling doom for the Republican nominee. When the Republican candidate, Senator John McCain, proclaimed that the economic fundamentals of the U.S. were sound, he insured that Barack Obama would win the election and become the 44th president of the United States. In fact, the fundamentals of the American economy are as feeble as were those of the Soviet Union before it collapsed.

Barack Obama is a very intelligent politician, and is already being compared to President Franklin Roosevelt, who presided over the New Deal economic policies of the 1930s in the depths of the Great Depression. However, Barack Obama may also be compared to Mikhail Gorbachev, the last leader of the once-mighty Union of Soviet Socialist Republics.

Gorbachev, like Obama, is a highly intelligent man. He was selected by the Soviet elite as their last-ditch candidate to save the crumbling Soviet Union. In spite of his best efforts, he failed. The economy of the Soviet Union imploded, leading to the total disintegration of the Soviet State, which once was deemed an equal superpower rival to the United States of America. Will Obama’s fate be that of Franklin Roosevelt, or Mikhail Gorbachev? There are disturbing parallels between the United States of 2009 and the Soviet Union in its last years of existence. These may prove more relevant than the comparisons some American economists are trying to draw between Obama’s and Roosevelt’s America.

Consider the following: prior to its extinction, the Soviet Union was driven to bankruptcy by bloated military expenditures, exacerbated by a losing war in Afghanistan. Its economy was immune to reform due to the tyranny of central planners. In the America that gave birth to the global financial crisis and credit crunch, the government’s finances have been driven to the brink of bankruptcy by vastly excessive military expenditures, run amok by a losing war in Afghanistan and an unnecessary war in Iraq. Its economy, supposedly a paean of free-market flexibility, has now proven to be a myth constructed by the financial alchemists of Wall Street and pseudo central-planners of the Federal Reserve and Treasury Department. Just as the Soviet Union used tax-payer money to bail out failed industries, the United States through its Treasury Department and Federal Reserve Bank have deemed failed financial enterprises “too big to fail,” warranting hundreds of billions of dollars in deficit borrowing that tax payers are responsible for in an equally futile rescue bid.

Obama, like Gorbachev, will be tied to an elite that has a vested stake in salvaging a doomed system, even at the risk of national insolvency. If Barack Obama has the intellectual stamina to resist the American financial elite and recognize that the Global Economic Crisis calls for a total restructuring of the economic order of the United States, he will go down in history as the president that saved America’s economy and preserved its status as the dominant economic power in the world. If, however, he is unable to unshackle himself from the failed policies of the American financial elite, he will be doomed to share the fate of Mikhail Gorbachev as that of being a valiant failure.