FIRE Economy | timiacono.com - Part 4

It Didn’t Have to Be This Way

Stephen Roach talks to Kelly Evans of CNBC about how the Federal Reserve is currently making the same mistake it made during the last two asset bubble inflations.

Coming up on the 10-year anniversary of this blog in March, it’s worth pointing out that Roach graced the very first post (on the old blog), noting the following:

“It didn’t have to be this way. The big mistake, in my view, came when the Fed condoned the equity bubble in the late 1990s. It has been playing post-bubble defense ever since, fostering an unusually low real interest rate climate that has led to one bubble after another. And that has given rise to the real monster — the asset-dependent American consumer and a co-dependent global economy that can’t live without excess US consumption. The real test was always the exit strategy.”

Not much has really changed at the Fed, or so it seems…

Trouble in the Oil (and Debt) Patch

This WSJ story ($) detailing the sharp increase in U.S. shale oil related debt along with Texas energy company WBH Energy LP going belly-up prompted this item from Russia Today.

The funny thing is that, absent any coordinated action, oil producers around the world are likely to cause an even bigger glut (and even lower prices) over the short-term as they attempt to compensate for prices that have already tumbled more than 50 percent.

Nothing to see here … move along

The graphic below from cross-currents.net (currently unavailable, but hopefully back soon) has been popping up all over the place in the last 24 hours or so and for good reason – for those not sitting on the edge of their seat waiting to BTFD, it adds to the growing suspicion that something is terribly wrong in our current QE-fueled financial markets.

Any BTFD devotees who may have been distracted by recent market action and resulting analysis such as the above  may want to peruse this offering from the San Francisco Chronicle to get back on track Sometimes talk of a tech bubble is mostly babble and they should certainly steer clear of Bill Gross’ latest offering Ides!.

The Deflation Bogeyman

Given this year’s tumbling oil prices, the image below from this QuickTake at Bloomberg seemed to be about as good a way as any to close out 2014 – Happy New Year!

The article itself contains all the usual conventional wisdom about the ill effects of falling prices but, of course, it excludes 19th century monetary history that is notable because there were regular bouts of deflation and short-lived depressions during an era of sound money that, over nearly 100 years, produced zero percent inflation, as opposed to the roughly 2000 percent inflation we’ve seen since the founding of the Fed in 1913.

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