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Tag Archives: interest rate

  • Insider

    Off The Cuff: Into The Abyss

    The Fed's actions are quickly becoming the trigger that will blow up the system
    by Adam Taggart

    Thursday, June 13, 2019, 6:56 PM

    4

    In this week’s Off The Cuff podcast, Chris and John Rubino discuss:

    • The Fed’s Desperation
      • It’s just playing for time at this point
    • Why Lower Rates Will Blow Up The System
      • ZIRP/Negative rates create all sort of perversities
    • Italy Threatens To Revert To The Lira
      • Is the Eurozone about to break up?
    • Bad Corporate Debt Is The Ticking Time Bomb
      • There’s simply way too much of it now

    In this excellent analysis, John does an exceptional job clarifying the unique point in economic history in which we live. The Federal Reserve is truly out of ideas at this point; it is simply playing for time until the system breaks:

    The point in the cycle where we are now is a really unusual time to talk about lowering interest rates. Normally when the labor markets are this tight, and wage inflation is running around 3% which it is right now, the Fed is usually tightening. Wage inflation is a kind of inflation they understand. This is as opposed to stock prices going up, bond prices, or house prices going up. That is inflation, but they do not count it as inflation. When wages go up, they usually start raising interest rates. It is really telling that they are seeing things that lead them to maybe start easing again even with the economy, in theory at least, still growing ten years into the beginning of an expansion.

    I think they are recognizing the fact that the world – not just the US, but the whole global financial system – is so highly leveraged that any kind of downturn becomes systemically risky. In other words, a 20% drop in stock prices which is the definition of a bear market is something that happens all the time at least historically. This time around, it might knock down other dominos in a way that is uncontrollable. This is just because there is so much bad debt out there.

    When you take on huge amounts of debt, by definition a lot of it has to be bad debt. Usually the good credits have already done their borrowing. If you are going to expand that beyond that point, you are going to have to work your way down into the barrel to the bottom of the barrel. That is where we are now. A lot of people who have borrowed money cannot pay it back. They are only hanging on because the economy is growing and because their paychecks are there. If you take that away, then Boom!. The system starts to fall apart.

    These guys know that at the Fed. They are trying to delay the inevitable easing because they know that interest rates are already so low. The European Central Bank and the Bank of Japan never did get to raise interest rates. The Fed only got to raise interest rates a little bit, which means they have no ammo going into the next recession. Normally the Fed will cut interest rates by about 5 percentage points from peak to trough. This is as a way of reinvigorating the economy during a recession. If they were going to do that now, we would be at negative 2 or 3% on the Fed funds rate. It would be more deeply negative for Europe and Japan. That is uncharted territory.

    What the Fed is doing now is using words. They are trying to talk the market up. It works (for now). Whenever they announce the possibility of easing or the cessation of tightening, you get a nice pop in the stock market. They are hoping that they can elevate asset prices until the China trade deal gets signed and until the turmoil in the Middle East has settled. That will also give the markets a pop, and that will keep the economy growing for a while. It will allow them to raise interest rates another couple of percentage points at the short end of the spectrum to give them ammo for the next recession.

    They really do not want to start cutting right now. From here, they really do not have much room to cut. I think it is highly unlikely that they are going to get what they want. In other words, it is an economy that grows for the next three years and allows them to raise the Fed funds rate to 5 or 6%. That is really, really unlikely in the scheme of things. They are going to be forced in the recession that is probably imminent just because the expansion has been going on for way longer than a normal expansion. It is going to run out of steam pretty soon. They are going to be forced to cut interest rates to zero and beyond.

    That is why Powell was talking about that. Now he is talking about the effective lower bound of interest rates which is below 0%, we found out in this last cycle. We do not know how far below zero it is. That is what we are going to find out this time around. In other words, how negative can you make interest rates before it becomes the problem rather than the solution? From an economic theory standpoint, that is fascinating. That is the kind of experiment you never expect to see in the real world. We are going to do it this time.

    We are going to find out what the absolute lowest level interest rates can go to before it blows up the system. I do not use the words “blow up” lightly. That is what could really happen when interest rates get down to that point, and it turns out they do not work. Then it is game over.

    Click to listen to a sample of this Off the Cuff Podcast or Enroll today to access the full audio as well as all of PeakProsperity.com’s other premium content.

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  • Daily Digest
    Image by swampt01, Flickr Creative Commons

    Daily Digest 12/18 – Venezuela Inflation Rate Passes 1,000,000%, Would Human Extinction Be A Tragedy?

    by DailyDigest

    Tuesday, December 18, 2018, 2:20 PM

    14
    • Trump and China: Towards a Cold or Hot War?
    • UK's May says rescheduling Brexit vote in parliament for mid-Jan
    • Venezuela Inflation Rate Passes 1 Million Percent, and It’s Costing Lives Every Day: This Is What Devastating Hyperinflation Looks Like 
    • Iraq’s Post-ISIS Campaign of Revenge
    • Reports show Russia mounted sweeping effort to sow divisions, support Trump
    • China’s Bizarre Program to Keep Activists in Check
    • Homelessness Rises Slightly Despite Strong Economy, Federal Report Finds
    • The Curbside Chat: Charles Marohn of Strong Towns on Building Better Places
    • The World's Most Controversial Coal Mine Is Set to Break Ground
    • Opinion: Would Human Extinction Be A Tragedy?
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  • Daily Digest
    Image by Got Credit, Flickr Creative Commons

    Daily Digest 6/6 – Health Insurance Companies Put In For 2019 Rate Hikes, Consumer Debt Outlook

    by saxplayer00o1

    Wednesday, June 6, 2018, 12:23 PM

    20
    • Health insurance companies put in requests for rate hikes for 2019 (New York)
    • Homeless services face cuts as Monterey County deals faces $36.5m gap
    • A Template for Fixing America’s Public Pensions
    • Pool of sub-zero euro debt yields shrinks further in May after Italy selloff
    • Consumer Debt Outlook – May 2018 (Lendingtree)
    • Argentina inflation rising, growth outlook lower -analysts
    • ECB cut back buying of Italian bonds in May, drawing Rome’s ire
    • How legalized pot is affecting employee drug tests
    • More than half of US housing markets were overvalued in April
    • Miles Franklin: Is Japan Going To Walk Away From The U.S. Debt Auction Too?
    • German Healthcare Deficit 300% Greater than Expected Due to Refugees
    • California Water Law Could Prevent Showering, Doing Laundry on Same Day

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  • Blog
    imgflip.com

    The Waiting Is The Hardest Part

    Tom Petty's anthem for today's investors
    by Adam Taggart

    Thursday, October 5, 2017, 9:21 PM

    22

    The stock market is now 70% higher than it was as the previous bubble peak immediately preceding the 2008 Great Financial Crisis.

    Reflect for a moment how painful the crash from Sept 2008-March 2009 was. How much more painful will a crash from today's much dizzier heights be?

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  • Insider
    Everett Collection/Shutterstock

    Off The Cuff: Bewitched, Bothered & Bewildered

    The reaction to the recent Fed hike makes little sense
    by Adam Taggart

    Friday, March 17, 2017, 6:37 PM

    11

    In this week's Off The Cuff podcast, Chris and James Howard Kunstler discuss:

    • Rate Hike!
      • The Fed just increased the interest rate by 0.25%
    • Scam-o-rama
      • The financial system is now a racketeering fraud
    • The Net Energy Predicament
      • The unseen cause of so many of the systemic breakdowns we're seeing
    • The Deep State In Turmoil
      • The Trump administration has set off an internal war

    James Howard Kunstler returns to Off The Cuff this week for a wide ranging discussion. First on the docket is the recent Fed rate hike, and the baffling logic that markets are using to interpret is as another "bullish" signal for piling into stocks. 

    No surprise, Jim thinks the markets have become one big roach motel for investment capital. 

    Click to listen to a sample of this Off the Cuff Podcast or Enroll today to access the full audio and other premium content today.

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  • Insider

    Off The Cuff: Rate Hike!

    What to expect from a rising interest rate environment
    by Adam Taggart

    Wednesday, December 21, 2016, 1:55 AM

    1

    In this week's Off The Cuff podcast, Chris and Axel Merk discuss:

    • Rate Hike!
      • Implications of last week's Fed announcement
    • Why Are Stocks Still Partying?
      • Shouldn't a rate hike spook investors?
    • The Trump Effect
      • What to expect economically from the new president
    • Cash, Gold & ???
      • What to hold going into 2017

    Well, it finally happened. After threatening a year ago to hike rates 4 times in 2016, the Fed squeaked in a single buzzer-beating hike last week. The move surprised few, as the predicted odds of the hike among market followers were 100%. Yet the markets still managed to shrug this off and move higher (typically, a rise in rates is seen as 'applying brakes' to the economy, and tends to cause investors to feel less confident in future earnings growth).

    Here to talk about the implications of the recent hike, the probabiliy of more to come in 2017, and the shellacking the precious metals have been subject to, is Axel Merk…

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  • Blog
    BrAt82/Shutterstock

    The Weighted Average Cost Of Capital

    When it goes up, prices go down. It's going up...
    by Adam Taggart

    Saturday, December 3, 2016, 12:59 AM

    24

    Get ready to live in an era of rising interest rates. It's going to be unfamiliar territory for all of us…

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  • Blog

    The View From Under The Bus

    A visualization of the extreme plight of the saver
    by Adam Taggart

    Wednesday, November 30, 2016, 4:20 PM

    28

    Through borrowing way too much, bailing out rather than prosecuting bad actors, printing trillions of "thin air" dollars, a deliberate pursuit of financial repression and other schemes — the future prosperity of the "everyday American" has been stolen by those in power and those positioned closest to the trough. Mathematically, this orgy of excess needs to be balanced by severe austerity; an austerity the elites are forcing onto everybody else. No wonder the masses are pissed.

    Few visuals drive this injustice home better than this one of historical bank CD interest rates. Note how they've been in steady collapse since the mid-1980s.

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  • Insider
    Mopic | Dreamstime.com

    The Pension Time Bomb

    Devastating shortfalls are manifesting everywhere
    by Chris Martenson

    Monday, August 29, 2016, 11:39 PM

    38

    Among the many losers picked by the Fed (in favor of rewarding a very tiny and wealthy minority), perhaps the greatest victims are pensions.

    Pensions have to make a couple of key assumptions.  One is how long you expect your cohort of pensioners to live. The second is the rate of return on the funds.  On both counts, pensions have been wrong, and wrong again.

    People keep living longer and pension fund returns keep underperforming. 

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  • Insider
    Mopic | Dreamstime.com

    Off The Cuff: The Folly Of Financialization

    Its cures are worse than the diseases it tries to fix
    by Adam Taggart

    Thursday, April 14, 2016, 4:22 PM

    24

    In this week's Off The Cuff podcast, Chris and Charles Hugh Smith discuss:

    • The Future Of Oil
      • Much more volatile prices lie ahead
    • The Folly Of Financialization
      • Central planners are creating cures worse than the diseases they're trying to fix
    • The Dollar Dilemma
      • The direction of dollar now hurts as many player as it helps
    • Return Of 'Race To The Bottom'
      • We risk a global currency war like that seen in the 1930's
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