Federal Reserve | timiacono.com - Part 55

A Sober Look at Quantitative Easing

This chart of past and predicted central bank assets from Credit Suisse, in which it becomes clear that the Bank of Japan has raised the money printing bar significantly, has popped up in a number of places recently, one of which was in this item at Sober Look.

It looks like both the yen and the Nikkei stock index are taking a breather today after surging earlier in the week, the latter notching a five-year yesterday. It seems inevitable that the yen-dollar exchange rate will return to 100 and, perhaps, weaken much more.

In Order to Better Understand the Fed…

From this item at FT Alphaville comes the handy flowchart shown below that details how the Federal Reserve gets from money printing to a stronger economy. Note that this can be referenced while reading through the Fed meeting minutes that were just released.

Fed Flow Chart

There’s a lot of detail in the FT article about monetary transmission and such, for those who might be interested in this sort of thing. I had no idea there were so many “channels”.

My guess is that future historians will look back at this sort of thing and have a good chuckle at how the world’s brightest economists thought the system should work in 2013.

It’s been some time since I’ve posted any excerpts or even linked to the writings of Jim Kunstler, but, this paragraph from his latest weekly commentary about what drives our financial system and our politicians just seemed to offer too keen of an insight to ignore:

Jim KunstlerHistory will record that this crisis of confidence in money was brought on by men who stupidly refused to acknowledge that the terms of daily human existence had changed in 2013. We could save the country and fashion a new economy appropriate to the new era of contraction, but it wouldn’t look much like what you see out there now. It would be all about empty highways and empty WalMarts and people turning their energies elsewhere, to their communities, workshops, homesteads, and main streets. We’ll get to that place, but the journey to it will be dark and lonely since it will be accomplished by individuals bravely venturing where no politician dares to speak of, and the lonely individuals will receive no support from their culture or any of the authorities who play at political leadership.

It’s probably a safe bet that Jim’s not a big believer in American Exceptionalism.

In this retort to his critics, David Stockman offers up this gem of an assessment of the Federal Reserve’s zero interest rate policy in an interview at Marketwatch:

In the world ahead, there is such a huge collapse coming in the financial markets, the third one since 2000, it’s better to preserve your capital, stay liquid, keep your head down, don’t borrow money unless you absolutely have to. That is very discouraging because people would like to earn a return on their savings.

That is why the current monetary policy is so profoundly wrong. When we have this character Rosengren up in Boston saying, it’s a good thing, we are trying to induce people to go into risk assets. Who in the hell is Rosengren to tell old ladies of America they have to buy junk bonds because the Fed tells them to. If the old ladies feel safer in a CD, they ought to be able to earn something besides dog food money on it. There is going to be a revolt against these arrogant mandarins running the Fed, they will rue the day they arrogated to themselves such massive power.

Of course, the official Fed line is that zero interest rates and record money printing will restore economic growth and create jobs, to which Stockman replies, “If our low rates could get companies to invest more, and if dogs could whistle the world would be a chorus”.

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