This woman is all wrong. If you heard her testimony, you know she’s delusional. She’s still talking rate hikes. I know the market thinks she’s fucking around, but she’s not.
She is dead serious when she says that the Fed has to raise rates now in order to avoid RAPID FIRE rate increases to fend off outrageous inflation caused by runaway economic growth. She even said the drop in crude might give the economy an unexpected jolt. No mention, however, of how many oil and gas jobs will be lost in the process and how all of that oil debt will get hashed out.
I am going to repeat one important part again. I just have to.
She believes raising rates now will help contain the economy from some amazing growth that apparently is right around the bend.
Will someone please explain this to me? I can’t analyze this anymore. My head is going to explode.
When asked why she’s paying banks 50bps for keeping reserves at the Fed, she said the Fed was using those funds to buy treasuries and MBS and have profited nicely on them. She furthered, the gains had last year in the Fed’s giant $4 trillion portfolio permitted them to kick back $100 billion in profits to the government, to be spent wildly on asinine projects.
There you have it. Get it?
$600 billion has been transferred back to the treasury since 2008.
Watch out for a possibly downside reversal.
If you enjoy the content at iBankCoin, please follow us on Twitter
My best attempt: raising the targeted FFR takes 12-18 months to trickle through the economy, hence Yellen is looking where FOMC *expects* economy to be in that time.
Problem 1: Huge role of the Fed is to calm markets and restore confidence. That’s not written down anywhere. Yellen’s old enough to still remember Latin: esse est percipi. If I think I’ll be out of a job next month, why would I spend money today instead of saving it? If I think mortgage rates are going down next month, why would I take a mortgage out today? Confidence is crucial. I don’t care if we’re all going to die, tell us we’re all going to be all right, and let the herd believe it.
Problem 2: Even if the thesis is true, we don’t simply fast-forward 12-18 months and here we are. The assumption of where we are in that time is predicated on another latin phrase these Ivory Tower economists love so much: ceteris paribus. But if you throw a wrench in the machine, guess what? Ceteris paribus is false. Actions today have an effect on actions tomorrow. So what’s the plan to stay “on-course”? Now we had back to Problem 1…
The Fed does an amazing job at spending money – because whatever they don’t spend, they have to return to Treasury at the end of the year. If you live near a FRB, go on one of the art tours, then eat at the cafeteria afterward – you’ll be amazed.
“Huge role of the Fed is to calm markets and restore confidence”
Yeah, she seems to have forgotten that part of her mandate.
This is a rally? it went up for a nanosecond. Nothing sustained at all. Looks like downside reversal has happened. Hopefully this afternoon – it can regain some momentum.
Even of we assume this insane logic about raising now as we teeter on the edge of oblivion so we don’t have to hit the brakes hard when we’re all attending cocaine parties and we can actually stand it…
This constant harping about a drop in crude equating to an economic jolt, more consumer spending, etc – it’s not the 70’s. People don’t really drive gas guzzlers anymore, there are various options for high efficiency heating equipment and oil-t-gas conversion have been rampant in the Northeast (oil heating hotbed), and various other technical advances that reduce the importance of oil in every day life. Oil has plummeted to 20% of its peak and have we seen a proportionally powerful response from the consumer yet? At all?
You are right Fly – Yellen is in The twilight zone…the deflationary vortex that has engulfed the world is clearly not in her vantage point.
She is living in another era – not 2016.
don’t worry it’s all contained
Politicians are grandstanding and looking like buffoons. The market will begin selling 10 & 30 yr debt once it realizes, the gubmint is not going to assist the market with borrowing and spending.
Once the market sniffs out that this gargantuan spending bill is designed for the “winner” of the upcoming election, bonds will be sold off in anticipation of increased borrowing.
I believe grandma knows this and that is why she let’s everybody know that the Fed will raise short term rates if what I outline occurs.
In the meantime, sell calls against you TLT, or sell above 132 and buy dips below 126.
Why doesn’t the government just set up 1,000 central banks and create the mother of all pyramid schemes? Each bank will put money in each other, pay each other 50 bps, then use the deposited money to buy T-bills, T-bonds, and MBS. All profits go to the government. Works until someone stops buying (like China)