Federal Reserve | timiacono.com - Part 4

Amid all the hubbub about the implications of the Greek election and snowpmageddon on the East Coast we are reminded that there is a Federal Reserve meeting this week, during which central bank policy makers are sure to talk about the location of the dots and the shape of the curves in the graphic below from this story at the Financial Times.

Notwithstanding the fact that Fed funds futures are notoriously unreliable for saying much of anything relevant about the future of the Fed funds rate (though they’re  not nearly as bad as the Fed’s own projections in recent years), the point of this story is a good one, namely, that the brain trust at the central bank will be giving due consideration to a major re-think of the whole idea of a June “lift off” for short-term interest rates, though they’re not likely to share much about that discussion with the rest of us.

Given the global economic headwinds (everywhere but in the U.S., or so it seems), the bond market certainly isn’t expecting a rate hike anytime soon as yields have plunged anew and the Fed is surely not anxious for a repeat of Greenspan’s mid-2000’s “conundrum” that led to the events of 2008-2009. Things are getting interesting for Ms. Yellen.

In Davos, former Treasury Secretary and would-be Federal Reserve Chairman Larry Summers warns the U.S. central bank to put off any increases to short term interest rates, citing deflation and secular stagnation as the two major threats of the current era of central bank omnipotence (that, lately, is evolving into something of a currency war).

Summers also doesn’t think the European Central Bank’s money printing extravaganza, announced to much fanfare yesterday (and sharply higher stock prices around the world) is going to do the eurozone much good, that is, save for another round of asset inflation.

While awaiting the announcement by the European Central Bank about its much anticipated money printing extravaganza, it’s worth taking a quick look at the latest musings of William White, former head of the Bank of International Settlements and a regular topic at the old blog, via this Telegraph story by Ambrose Evans Pritchard.

The economic prophet who foresaw the Lehman crisis with uncanny accuracy is even more worried about the world’s financial system going into 2015.

“We are in a world that is dangerously unanchored,” said William White, the Swiss-based chairman of the OECD’s Review Committee. “We’re seeing true currency wars and everybody is doing it, and I have no idea where this is going to end.”

Mr White is a former chief economist to the Bank for International Settlements – the bank of central banks – and currently an advisor to German Chancellor Angela Merkel.

He warned that QE in Europe is doomed to failure at this late stage and may instead draw the region into deeper difficulties. “Sovereign bond yields haven’t been so low since the ‘Black Plague’: how much more bang can you get for your buck?”

Mr White’s warnings are ominous. He acquired great authority in his long years at the BIS arguing that global central banks were falling into a trap by holding real rates too low in the 1990s, effectively stealing growth from the future through “intertemporal” effects.

He argues that this created a treacherous dynamic…

And we know how the story went from there…

See also:

Faber: Short Cental Banks

Purveyor of the newsletter Gloom, Boom, and Doom and frequent CNBC personality Marc Faber hasn’t exactly been firing on all cylinders in recent years as U.S. equity markets have melted up but, like all bears, he’ll eventually be right again.

For one possible reason why, just listen to the awkward silence after he predicts “The central banks will be exposed for what fraud they commit” less than a minute into the clip below.

On a related note from another CNBC video, Pawn Stars star Rick Harrison comments on how it has become difficult to find physical gold from the wholesalers he works with.

It seems that the Swiss Bank move, the prospect of a GREXIT, and ravenous demand for the metal in Asia might finally be manifesting itself in tighter supplies domestically, though we’ve certainly heard that story before.

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