The longwave economics perspective is, at its core, skeptical of much of the HS&J (hype shuck, and jive) that passes in transfictional media as fact. Despite my membership in a couple of journalistic groups, I don’t see much being able to change at the public perception level because when you start writing about how the game really runs, eyes glaze over, people nod off, and snoring is soon heard.
To counter this, I hereby create my news job title around here: NewsJay. Click here for the moodsetting music. Let it roll in a new tab, speakers up, and stay with me.l…
Now we can ramble: For the aware person, nothing is more exciting that figuring out “the truth” (whatever that is) in advance of the rest of the herd. It gives us (thinkers) time to reflect, consider bargains before prices run up, and so forth.
Oh, sure, anyone can made simple long-term decisions and win over time. Buying a “hard asset” like gold (when the Fed has been diluting purchasing power of the dollar by [on average] 3.25% per year since its founding in 1913. Or, simply buying stocks in companies with the largest “proven oil reserves” and waiting for the world to burn through the declining resource. Sure, those are likely winners long term.
But every so often, it helps to take the blinders off. And we will do that very publicly this morning by comparing two simple charts from the Federal Reserve that (together) reveal in stark ugliness why, if there is an economic recovery, you don’t have more money. It’s so simple even Ures truly can figure it out.
Step 1: Our first chart du jour, courtesy of the Federal Reserve of St. Louis excellent research resources, is to look at the the mortgage-backed securities PLUS the US Treasury securities held by the Federal Reserve. In other words, the asset side of their balance sheet:
OK, what does it mean? Well, it looks to me like at the lows of the 2009 post housing collapse, the Fed held about $500-billion of treasuries. Plus about zero in the way of mortgage-backed securities. Maybe as much at $600-billion (just over 1/2 a trillion) worth, if you want to be generous.
Fast forward to the latest data: We can eyeball that the Fed is (*much as a snake swallows its own tail) holding more than $2.2 trillion in Treasury assets plus the MBS portion is now pressing $1.5 trillion.
Time for simple arithmetic: This is rough and only the first cup of coffee, but looks like $3.7 trillion in Fed ownership of debt instruments.
Step 2: Next, we look at the Gross Domestic Product through Q2 of 2013, and we can estimate that the reason that it feels like there has been no economic recovery is the simple reason that the increase in GDP has been directly proportional to the combined growth of Fed Treasury and MBS. Say, how about that?
Which gets us to our great ponder of this morning ( or the groB fragge heute for our Swiss gnome-schoolers):
What is the Fed’s exit strategy?
In other words, is there some logical limit beyond which the Fed cannot keep buying up all the pieces on the Monopoly board, now that the Chinese are not buying enough US Treasuries to matter nor enough MBS for us to play the game of “hot potato” with them?
There may be no technical reason that the Fed can’t continue to increase its holdings in an effort to maintain the illusion of recovery which includes a stock market that just had a “paint the tape day” this week, trying to bust out to the upside, and when that failed, reality snuck in following.
“Further, participants noted that ongoing asset purchases could increase the difficulty of managing exit from the current highly accommodative policy stance when the time came. Many participants, however, expressed confidence in the tools at the Federal Reserve’s disposal for managing its balance sheet and for normalizing the stance of policy at the appropriate time. Regarding the marginal efficacy of the purchase program, most participants viewed the program as continuing to support accommodative financial conditions, with a number of them pointing to the importance of purchases in serving to enhance the credibility of the Committee’s forward guidance about the target federal funds rate. A majority of participants judged that the marginal efficacy of purchases was likely declining as purchases continue, although some noted the difficulty inherent in making such an assessment. A couple of participants thought that the marginal efficacy of the program was not declining, as evidenced by the substantial effects in financial markets in recent months of news about the likely path of purchases. “
I believe the Fed has made a “deal with the Devil” that will come back to haunt us within a couple of years. Yes, this is a long-term view, but what the Fed faces is really a two-part problem which has an analogy in drug rehab treatment.
The first problem is: How to ratchet down the quantitative easings to zero. The first step. If they mention slowing their asset-buying largess, the markets will tank.
Then, the second problem arrives: How to divest of those assets…or do all mortgages eventually belong to the government and say, isn’t that how the Soviet system ran? Or, with an ex-Berkeley Fed chair is this the new plan?
As we look at the Challenger job cuts report (next item) it strikes me that as busy as sitting members of the Federal Reserve were, back in the day, getting their fine academic credentials, they may have missed the 1968 musical Oliver! which asks the question in music that we are asking ourselves this morning. (Go ahead, play it in the background and keep reading…)
With declining disposable, the LBGT movement getting traction (thus reducing birth rates) and bringing the “new coupling” plus the arrival of additional robotics and workplace automation, no to mention 3D food printers like the ones being shown at CES in Las Vegas this morning, and what about New Minimalists? Just who will buy all those assets piling up on the Fed’s balance sheet? The public with its collapsing disposable income driven to the gutter by the healthcare tax? Not bloody likely.
But that’s easily solved, of course: We’ll just pretend (for statistical purposes) that healthcare is not a tax and that buying healthcare is optional. That way, it won’t appear that we’re in trouble.
“There’ll never be a day so sunny,
It could not happen twice.
Where is the man with all the money?
It’s cheap at half the price!
Who will buy
Who will buy
This wonderful feeling?
I’m so high
I swear I could fly.
Me, oh my!
I don’t want to lose it
So what am I to do
To keep the sky so blue?
There must be someone who will buy!”
Read more: Oliver – Who Will Buy Lyrics | MetroLyrics
And that’s what the Fed meeting toward the end of this month will be all about:
“Who will buy,” indeed. Enjoy the Roaring Teens while they last.
More after this:
Yes: There are Jobs Left
While we roll around the problems of FutureFed, it’s not an issue this morning as we flip over to this morning’s Challenger Job Report just out:
Announced job cuts fell to the lowest level of the year in December as U.S.-based employers reported plans to reduce payrolls by 30,623 during the month. That was down 32 percent from a November total of 45,314. For the year, job cuts were down about 3.0 percent from 2012, according to the latest report on monthly job cuts released Thursday by global outplacement consultancy Challenger, Gray & Christmas, Inc.
The December total was six percent lower than the 32,556 job cuts announced in the same month a year earlier, marking the third consecutive year-over-year decline. Last month was not only the lowest job-cut month in 2013; it was, in fact, the lowest job-cut month in more than 13 years. The last time employers announced fewer job cuts was June, 2000, when 17,241 planned layoffs were recorded.
Overall, employers announced a total of 509,051 planned job cuts in 2013, down 3.0 percent from 523,362 in 2012. It is the lowest annual job-cut total since 434,350 cuts were announced in 1997. The fourth quarter of the year saw a slight increase in October job cuts, followed by consecutive declines in monthly job cuts to close out 2013. In all, 121,667 job cuts were announced over the final three months of the year, which was 5.3 percent lower than the previous quarter (128,452) and 11 percent lower than the fourth quarter of 2012 (137,361). – See more at: http://www.challengergray.com/press/press-releases/2013-december-job-cut-report-fewest-layoff-announcements-1997#sthash.nMKclytg.dpuf
It’s a little hit of job meth like this that will bring the Dow back to within spitting distance of a new all-time high just about the time the January Fed ,delibs gavel down. February looms more and more interesting.
Christie: Sayonara White House
(NewsJay) It doesn’t take a rocket surgeon (or a veterinarian) to figure out that NJ guv Chris Christie has screwed the pooch on his White House run with news breaking all over the place that his top aides, including a key woman staffer, deliberately set up traffic problems for political ends.
Broken Trust: If Christie can’t keep his kids from playing nicey-nice when all they have are state agencies like the NJ transpo people, how would he do at HR Director of a country with tools like the NSA and other black ops resources in hand?
NVFW (not very [figure it out] well) doesn’t even come close. Public trust, once lost is fickle…although the 2016 election with a Christie versus Clinton choice could very well prove my contention that America is suffering terminal national amnesia. Those who forget the lessons of what?
Oh, Ted Cruz stock in up 40% this morning. But if you’re not a Texan (sorry, about that) you may not have been able for figure that one out for yourself. Down here in the clear-thinking state, some things are obvious.
(NewsJay) From our news analyst fellow in tropical Winnipeg:
Dear Mr. Ure,
If “The New York Times” has reported news at January 8 of an alleged pair of rebel attacks against Syrian chemical storage facilities, perhaps surprise can be calmed with a similar sounding December 24 report in Lebanon’s “The Daily Star”. What of this “RT” report of a rebel attack quoted by “Al-Mayadeen” tv? Mind you “France 24” suggests the spouse of Al-Mayadeen’s head of news is the communication advisor to President Assad. Perhaps we should be grateful for any news given that the BBC was required to remove their journalist from the Norwegian frigate assisting with the chemical weapon material destruction operation.
North Korea: Malpractice?
(NewsJay) We can’t help but wonder what’s behind the headline this morning that “Kim Jong-un’s aunt ‘in vegetative state after brain surgery.”
Perhaps Dennis Rodman will be able to find out something, you think? Or, is he too busy singing?
We don’t often point to The Diplomat’s excellent content, but you need to go read “Why China wans to ‘Strike the Mountain: and “Kill the Chicken” before you invest another several billion in building the wrong country’s economy… Easier than striking the chicken and killing the mountain, I suppose…
For the Truly Paranoid
(NewsJay) There was another article in the British Economist this week about how governments and unscrupulous fiber optic companies may be able to listen in on conversations using nothing more than the [innocent?] fiber optic cable that brings in your Wi-Fi, streaming, and internet.
It can be turned into a microphone and is addressable to within 10 feet.
It’s enough to nudge the truly paranoid to begin looking at copper as a very precious metal, indeed.
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