Do people really think the Fed is going to promote higher interest rates given the following?
The broadest measure of unemployment U6, which includes the unemployed and those underemployed, increased 4.1% to 15.2%. U6 has increased 6.2 % during the last two mouths. Additionally, gross domestic product, a measure of the nation's economic output, grew at a mere 1.4 percent annual rate in the first half of the year, down from 2.5 percent in the same period of 2012.
So we have
-a sharp rise in U6-broadest measure of unemployment and underemployment- in the last two months (14.3% to 15.2%)
- a 36% decline in GDP growth from the same period in 2012.
-a disappointing 162,000 jobs created in July,
-four low-paying sectors — retail, restaurants, temporary staffing firms and home health care — accounting for 60% of the jobs in July
-the ranks of part-timers swelling by 791,000 vs.187,000 for full-timers since March 2013.
YOU THINK THAT FED POLICY WILL SUBSTANTIALLY RAISE RATES THAT WILL INCREASE BORROWING COSTS FOR HOMEOWNERS, CONSUMERS, SMALL BUSINESSES AND LARGE BUSINESSES, AND THE GOVERNMENT ITSELF??
Didn't mention another problem with Quantitative Easing, because it's more obscure and difficult.
From yesterday's Zerohedge: " as deficits decline, as they have been in the US for the past few quarter (at least until the housing picture inevitably deteriorates again and the GSEs go from source of government funding back to use, and the demographic crunch hits in 2015 and deficits explode higher once again), ongoing monetization means collapsing the high quality collateral pool of assets far more than the TBAC advises. In fact, it is the TBAC that is pulling the strings on the Fed and making it clear, as it did in May, that the Fed has no choice but to taper as long as deficits don't return on their normal, upward trajectory (whether this means a war is inevitable to boost contracting defense spending remains to be decided). "
My point is that the possibility of the Fed curtailing its accommodative policies is real, whether or not
the slack is taken up on the fiscal level. That event would likely be transformational for both debt
It's possible they will, if only for the reason given in my last msg. It's become increasingly obvious that
quantitative easing is now benefiting mainly those who don't need it--those with wealth in the form
of financial market assets.
Many good articles in favor of the "taper" concept now. CF: Steven Roach's "Breaking Bad
Habits" at Project Syndicate.
Even Lacy Hunt, who believes deflationary/depressionary conditions will hold sway for some
time, regards the quantitative easing concept as ineffective.
IMO, make no mistake: bonds will be sold hard should the tapering begin. In that sense,
Bernanke's wrong: a reduction in Fed buying is most definitely tantamount to a rate
To some extent, stealth tapering is already underway. The bid to cover on UST has been in decline, and Fed tapering comments are more about following the trend than setting one. Interest rates can certainly drift lower from here, but I doubt we make and hold new secular lows. I think the inflation cat is out of the bag, and there just aren't many buyers willing to hold TNX at a 2% yield. Other buyers will come back when rates rise.
It's also highly likely that any attempts at a Fed exit will be tempered with lots of additional can kicking. Consider that any bond sell off from tapering will impair the Fed's own holdings as well. That's the problem with being the only buyer.
Good to hear from you phage and all the best to you and yours.