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A pretty scary chart March 22, 2018

Posted by hslu in Economics.
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What will the chart look like nine months or a year down the road?

The stock market is trying to figure it out too.

Recession once every 4 to 7 years. Why? July 7, 2014

Posted by hslu in Economics, Euro, Global Affair.
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Yeah, since 1947.

Why?

Is it the Fed? Is it the too big to fail and too big to jail financial institution? Is it the war?

Can the recession or if you will boom and bust cycle be avoided?

May be it is the inherent natural of the capitalism and us human beings: greed and fear.

May be it is the government regulators, including the Fed, who are by default incompetent, lazy, unaccountable and always failed to do their jobs.

May be it is the politicians who failed to make laws before the shit hits the fan so to speak.

The truth of the matter is sadly for our common people a combination of all the above.

If it is and I think it is, the capitalism system is seriously flawed and the history will for sure repeat itself again.

Last recession was in 2009 which means another one will come in a couple of years. Since the Great Recession was so severe, it may take a couple of years more to get rid of the leverage out of the system. But, come it will. Inflation has already started in the US.

Grandma Yellen and DJIA June 23, 2014

Posted by hslu in Economics, Global Affair.
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The Federal Reserve is doing a very lousy job forecasting the growth rate of American’s domestic economy. They are supposed to be the smartest people in the world of economics yet they consistently misjudged the strength of American’s economy for many years. We also can not rely on them for direction of the stock market either.

On Wednesday, June 18, 2014, Grandma Yellen lowered her projection of the annual growth rate for the US economy in 2014 to 2.2 % from 2.9% announced in March 2014.

I don’t know what kind of model those high-paying PhD economists at DC’s Federal Reserve used to forecast the growth of the economy and inflation rates, it is apparent that they are just as clueless as many Americans are. Yet, they are in charge of American’s monetary policy which has great implications to the world economies, especially those of the emerging markets in the world.

Scary.

One reason that those guys did a poor job was probably because they fed garbage to their model, hence garbage out from the other end. But Grandma Yellen ran with it anyway.

In the mean time, stock market all over the world (except a few exceptions: China, Japan, etc.) keeps making all time highs as if party will never end and inflation will never come.

Scary.

A simple example: When asked by the reporter in March 2014 during her press conference, Yellen said that the Fed will start raising the federal funds rate “about six months” after QE ends. The Dow promptly tanked 100 points right after her comments.

Scary.

I bet you a nickel that she will be gun-shy from now on and ignore warning signs from the economy (which she did in her press conference in June 2014) until it is too late. She’ll postpone rate hike which will probably end up with a stock market hard landing and catch everyone by surprise.

Scary.

 

 

BLIND leading the Blind March 21, 2014

Posted by hslu in Economics, Global Affair, Politics, stocks.
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Look at this picture and tell me what you see.

A beacon of light above the entrance of a building with menecing clouds gathering in the sky in the background.
The building is the Federal Reserve building in Washington DC. The beacon of light gives out hope of chiarman Benanke or Yellen leading the US economy out of the recession into a bright future.

Benanke created QEs but they barely kept the US economy creeping along at ~2.2%. He knew his QEs made inequality in the US worse and he wanted to get taper started while he was still in the office.

Lo and behold, the moment he started taper in December 2013, the job market in November 2013 tanked: 74,000 new jobs vs. 200,000 expected. December’s number isn’t much better: 113,000 vs. 185,000. January 2014 saw 175,000 new job but still much lower than what is needed to absorb new entrants into the economy.

So what’s going on here? Do we have a recovery or do we not?

No wonder the beacon of light is’t very bright. The US economy is in the dark just like the cloud behind the building. The one who’s supposed to lead the economy out of the dark couldn’t see very far out either.

Read this from Yellon when she was pressed in the Q&E session to put a date on when the short rate will rise after QE ends:

I — I, you know, this is the kind of term it’s hard to define, but, you know, it probably means something on the order of around six months or that type of thing. But, you know, it depends — what the FOMC statement is saying is it depends what conditions are like at the time.”   

In plain English:

“Yes, it depends and I don’t know. What else do you want? Give me a break.”

It’s kind of blind leading the blind. And we are left in the dark to guess what’s going to happen next. For the emerging markets, I am sorry, you are on your own. The US federal Reserve only cares about what happens in the US. You countries can take care of your own problems: raise interest rate to 10+%, devalue your currencies, cut your federal budgets, reduce pension benefits, what ever. That’s your problem. Not mine.

That’s was Bernanke’s position. It will be Yellen’s too.

That’s simply not fair. The US government through its crony Wall Street too-big-to-fail investment banking firms and too-big-to-prosecute bank CEOs created the financial crisis in the first place. The Great Recession was instigated by the United States and QEs followed. Now QEs’ unintended consequences begin to surface and the US washes its hands and leave other nations to face the consequence on their own.

This is the classic behavior of a bully.

$106.1 billion March 15, 2014

Posted by hslu in Cold War, Energy, Global Affair, Oil, Politics.
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Looks like that Putin is ready to play hardball with the United States over Crimea.

That’s the amount of U.S. dollar, mostly in U.S. Treasury, Russia has withdrawn from the Federal Reserve over last week ended last Wednesday, 3/12/2014.

Well, there is no proof that the central bank who withdrew the money was actually Russia. However, no other central bank has the motive or enough deposit with the Fed to do that this week.

Putin is getting things ready for Crimea’s referendum Sunday and beyond. He is trying to get Russia’s money out of U.S. while he still can in case U.S. put a freeze of Russia’s assets in the U.S. after Sunday.

America thought that Soviet Union was totally defeated after Berlin wall was torn down. Putin is trying to put the old Soviet Union back together.

The U.S. – Russia cold war officially starts on Sunday, 3/16/2014. All Putin needs now are high oil and nat gas prices.

 

 

The New Economic Prospective got it Wrong January 2, 2014

Posted by hslu in China, Cold War, Economics, Energy, Global Affair.
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Here is a quote from a November 12, 2013 post by  L. Randall Wray entitled: “What If China Dumps US Treasury Bonds? Paul Krugman inches toward MMT:

http://neweconomicperspectives.org/2013/11/china-dumps-us-treasury-bonds-paul-krugman-inches-toward-mmt.html

“Worst case scenario? The US dollar might depreciate against some other currency. That’s a long-shot but it could happen. Will that push up US interest rates? Doubtful. The US Fed determines the short rate, and the global search for safe assets plus expectations of future US Fed policy determines the longer rates.”

Wray’s post explored the consequences to the US economy if China decided to dump US Treasuries. The article maintained that since the US is the only sovereign issuer of the US dollar and the Fed controls the short term interest rate and influences the long rate, that one should “don’t bet against the dollar or US interest rates because “Uncle Sam wears the biggest pants in the world.”

The article further quoted Krugman’s latest post: “Who’s Afraid of China ? ” that:

“China’s selling American bonds wouldn’t drive up short-term interest rates, which are set by the Federal Reserve.”

And

“…even if Chinese sales somehow put a squeeze on longer maturities, the Fed could just engage in more quantitative easing and buy up those bonds. It’s true that such actions could possibly depress the value of the dollar. But that would be good for America!”

There is something wrong about Wray’s post because Wray didn’t address the issue that a depressed US dollar will drive up the prices of import goods and, on the contrary to Krugman’s point, a lower US dollar is “NOT GOOD FOR AMERICA!”

It also didn’t mention the possibility of inflation down the road due to a weak US currency.

If China decides to sell its US Treasury holdings, the long end of the interest rate curve in the US will rise even if the Fed continues to hold the short term rates low. The US dollar will continue to lose its value, prices of import goods will go up and Americans will pay more for the everyday stuff at Wal-Mart and other discount stores. In addition, prices of import cars will go up which will make them less affordable to Americans. Crude oil, which is denominated in US dollar, will be more expensive even though America is seeing a rapid increase of domestic oil production. The surge of oil production will fade because of rapid decline of oil production from shale oil reservoirs.

Another point which Wray’s post didn’t address was the threat of inflation.

Many economists like to point to the current low inflation rate and lowing jobless rate of 7.3% as the proof that QEs by the Fed is not inflationary. But this is not normal. The low inflation rate in the face of massive QEs is the result of weak demand stemming from a persistent high U6 rate of approaching 14%. The 7.3% jobless rate is caused by people getting out of the work force and not by strong organic growth of new jobs by the economy.

As the Fed continues to keep the short term rates low and possibly engages in further QE operations to influence the long rates, the inevitable consequence will be inflation down the road. Case in point: the purposes of Bank of Japan‘s QE operation are a lower Japanese yen and a higher inflation. We have yet to see the real and unintended consequence of Japan’s monetary experiment. Similar results may happen in the US.

The show has just started.

When the threat of inflation is breathing down the neck of the Fed, the Fed chairman or chairwoman will have no option but to raise the short term rate. At that point, the Fed has already lose the control of the long rate because the market will not allow it.

Do you see the combination of a lower US dollar, a higher inflation rate and a higher interest rate as “good for America” as Krugman insisted in his latest post?

I don’t.

Worse off, if the financial markets in the world  lost confidence of the US dollar, all hell will break lose for America and American people! It will be that bad!

Well, you have to decide for yourselves but I do have something in Chinese for you to think about:

因果,有因有果

有因报因,有果报果

因果报应,辗转相生

不是不报时间未到。

 

 

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