Federal Reserve | timiacono.com - Part 4

Another Stunning Long-Term Chart

From a recent presentation(.pdf) by Agustín Carstens, Bank of Mexico governor and chairman of the IMF’s International Monetary and Financial Committee, via this item at Wolf Street comes the chart below that, once again, reminds us all how far removed the global financial system is from anything that could be considered “normal”.

Carstens doesn’t oppose recent interest rate and QE policies by central banks, but he is quite concerned about how it all turns out, summing things up rather nicely by noting:

The crux of the matter is that financial risk-taking has been far more responsive to unconventional monetary policies than real risk-taking has been.

This would be less troubling (well, at least a little less troubling) if not for the fact that the world’s most important central bankers in general (and former Fed Chief Bernanke in particular) have never acknowledged that “the reach for yield” even exists.

Feeling Better About This?

It’s not clear in this Fiscal Times story why, in a recent survey, millennials were found to be more upbeat about their finances, but the graphic below is surely not one of the reasons.

This chart has made the rounds since surging student loan debt started making headlines a few years ago, but I’ve never seen it with a timeline going back to the early-2000s.

Obviously, the student loan curve looks much worse than when depicted from the financial crisis onward, particularly when observing the fairly neat hand-off that occurred about six years ago from credit card debt and home equity loans, the latter continuing to decline.

Economic Surprise

Indicators like Bloomberg’s Economic Surprise Index are much like economists who, it is sometimes said, have predicted eleven of the last two recessions (or something like that).

Nonetheless, it’s worth noting that the recent string of disappointments have exceeded the level of the many false positives (or, in this case, false negatives) since the recession.

Of course, all other sharp downturns in the index have proven to be cases of “bad news is good news for stocks”, a meme that will, perhaps, be tested this time around.

From Bloomberg comes word that credit managers for American companies are getting a little worried about debts going unpaid somewhere down the line, that is, when things might not be so hunky dory in the U.S. and global economy and the Fed is raising rates.

A few more dates on the x-axis would have been helpful for the main graphic, as would a little clarification about the end data point on the far right (given how the chart appears on the left, the composite index appears to still be above 50, but that’s in conflict with the two smaller graphics). In any case, it’s not good.

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