In May of 2000 the Federal Reserve bank discount rate changed from 5.5 percent to 6 percent. By November of 2002 the Federal Reserve bank discount rate had fallen to 0.75 percent.
The Fed’s ability to control the federal funds rate comes from its ability to alter the supply of liquidity in the overnight market through open market operations. Consistent with the absence of a liquidity effect, open market operations appear to be a relatively unimportant source of liquidity to the federal funds market.
It's now much worse than it was in May.
From yesterday's CPI figures released by the BLS. Annual CPI is at 2.0 percent and one year rates are 0.12 percent. The real rate of return is now at a negative rate of 1.88%. Meaning $1,000 today in one year treasures will be $981.20. What will $1,000 worth of gold be worth a year from today? I can't say, but I prefer the gold to the $ or € or ¥.
April 2013 CPI data are scheduled to be released on May 16, 2013.
1-Year Treasury Constant Maturity Rate was 0.10 percent as of Tuesday.
After the Fed's third round of quantitative easing. Inflation remains below target. The asset purchases have given a slight boost to the labor markets. That explains the 11-1 vote to continue QE3 purchases.
When you are being offered a $100 dollar return on a one year $100,000 investment. The government is telling you. Keep it. We don't need it. The strongest advocate of stimulus at the Fed said yesterday, that the fed could end bond purchases abruptly. That's easier said than done. IMO
We get CPI tomorrow. BLS today said that the seasonally adjusted producer price index fell 0.7 percent last month. That data tells us that there was deflation at the wholsale level. It's the biggest decline since February 2010.
Real 1 year rates are still negative. Using the BLS CPI data and the Treasury note.
One month gold lease rates have climbed from below 0.4 to over 0.55 from a month ago. Something isn't adding up. IMO
Margin debt levels are nearing all time highs just as the index's are. Negative real rates are forcing more investors into riskier and riskier positions. Bank of America up about fifteen percent since options rolled over last month. Borrrow at 0.25 pecent to leverage BAC options at over thirty percent net a month.
Is there any wonder why margin levels are so high? How could there be. IMO
So we have a global economy being supported by the Fed on the backs of what's left of the American middle class waiting for its real wages to get dragged down to some sustainable global level? What good is level wages if what we are making isn't something China is going to buy? They might buy GM cars but they're the ones THEY make. Same with Apple products. We make movies and software but they copy it for free. We make great weapons but that's never going to be a big consumer item in China.
I wrote nothing about wages. I only wanted to point out that holding cash with negative real rates pushes more and more investors into tangible assets.
When the bench mark is offering a negative return the investment risk increases. IMO