Archive for the ‘Federal Reserve Board’ Category

All You Gotta Do Is Act Naturally

Monday, February 27th, 2017

The U.S. Supreme Court isn’t the only influential government entity that President Trump will have an opportunity to make his mark on.

The Federal Reserve Board will likewise bear the Trump brand in the not-too-distant future. Two of the seven seats on the Federal Reserve Board of Governors are already vacant and now a third governor, Daniel K. Tarullo, has announced that he will step down in April. Called the “lead architect of post-crisis financial regulations plans” by The Wall Street Journal, Tarullo is not likely to be replaced by a pro-regulation governor.Natural Rate

In addition, the Fed’s influential general counsel Scott Alvarez, who has sometimes been referred to as “the eighth governor,” will retire this year after a 36-year career at the central bank. And the leadership term of Chair Janet Yellen expires in January 2018, while Vice Chair Stanley Fischer’s term expires in June.

The changes are likely to result in a different perspective for the board, which has been dominated by ”academics who don’t know how finance and the economy really work,” according to Danielle DiMartino Booth, a former Federal Reserve Bank of Dallas staffer and author of a new book, Fed Up: An Insider’s Take on Why the Federal Reserve Is Bad for America.

Booth describes “a tribe of slow-moving Fed economists who dismiss those without high-level academic credentials,” and she counts Ms. Yellen and predecessor Ben Bernanke among them.

“Central bankers have invited politicians to abdicate leadership authority to an inbred society of Ph.D. academics who are infected to their core with groupthink, or as I prefer to think of it: ‘groupstink.’”

We hope the final copy offers more wit and insight than that, but you likely get the idea.  (more…)

The Good, the Bad and the Ugly

Monday, February 6th, 2017

For the past eight years, the Federal Reserve Board has been the primary force behind the U.S. economy. That hasn’t worked out so well.

Now President Trump is in charge of the U.S. and its economy.

Whether that will revive the economy and make America great again remains to be seen. While the Trump presidency is still brand new, we’ve already seen more action take place that will affect the economy than we saw in the past eight years.trump_cowboy_2509705

Some of what’s taking place appears to be good. Some of it appears to be bad. And some of it appears to be ugly.

The good. Already, President Trump has signed a slew of executive orders. While we’re no fan of executive orders, every president has used them to a degree–and it was one way to make a quick impact, even before his cabinet has been confirmed.

Regulation, as we have frequently noted, has paralyzed the economy, having its greatest impact on small businesses. That President Trump is serious about deregulation is clear by what he’s done to date.

One of his executive orders requires that whenever a new regulation is approved, it must be offset by “the elimination of existing costs associated with at least two prior regulations.” The order adds that the “total incremental cost of all new regulations, including repealed regulations, to be finalized this year shall be no greater than zero, unless otherwise required by law.” (more…)

Good News: Fed Predicts Slow Economic Growth

Monday, January 23rd, 2017

We can now be assured of improved economic growth in the years to come.

Why?  Because the Federal Reserve Board is predicting slow growth.  And the Fed is always wrong.

That may seem harsh, but throughout the Obama administration, the Fed predicted stronger economic growth than the U.S. ultimately experienced.united-states-gdp-growth-forecast@2x

Consider the Fed’s record for the past five years. The Fed projected growth of 3.0% to 3.6% for 2011; actual growth turned out to be half that–just 1.6%. For 2012, the Fed projected growth of 2.5% to 2.9%; the actual rate was 2.3%. For 2013, the Fed projected 2.3% to 3% growth, but actual growth was 2.2%. For 2014, the Fed projected 2.8% to 3.2% growth, and the actual rate was 2.4%. Finally, for 2015, the Fed projected 2.6% to 3.0% growth and the actual rate was 2.4% again.

Are you seeing a pattern here? Five years of predictions, five years of overly optimistic projections. The Fed has been almost as incompetent about predicting growth as it’s been at producing growth.

Fed Goes Conservative

Now we have a new Republican administration, but it’s the Fed that’s gone conservative. The allegedly nonpartisan Fed is predicting that the economy will grow by just 1.9% in 2016, 2.1% in 2017, 2.0% in 2018 and 1.9% in 2019. Longer term, the growth rate is projected to be just 1.8%. (more…)

New Year’s Resolutions for Others to Break

Monday, January 9th, 2017

We all make New Year’s resolutions and typically break them by the time the ball drops on Times Square.

With the same good intentions and low expectations of success, this year we’ve decided to suggest New Year’s resolutions we want others to follow. Some of our suggestions below may be carried out by the stated parties, but others have no chance of even being considered. They should be though, and that’s why we’ve included them. 2017

President Obama: Resolve to golf daily. It seemed as though President Obama was always golfing when there was work to be done. Now, when he should be out golfing, he’s busy working on his legacy.

And what a legacy it will be! The economy failed to achieve 3% growth during any year in which he was president, which is a first. The federal debt doubled, Russia and China have filled the void left by leading from behind, and Iran and North Korea have moved closer to becoming nuclear powers.

He’s ignored Congress, using executive orders to break all records for new regulations. But he hasn’t ignored the world’s dictators, having lifted sanctions on Cuba and Iran, two of the world’s most repressive regimes.

And now, post-election, he’s shown his disdain for Israel by abstaining from a United Nations vote and “allowing a nasty and harmful anti-Israel resolution to pass the United Nations Security Council,” The Weekly Standard reported. The resolution says Israeli settlements in occupied territory have no legal validity and are a violation of international law. (more…)

The Fed Is No Longer Boring

Tuesday, December 27th, 2016

We’ve ignored the Federal Reserve Board for weeks now and with good reason. We’ve been bored with the board.

There have been no taper tantrums. There’s been no pontificating about macroprudential supervision, quantitative easing or even forward guidance. No one is talking about negative interest rates anymore.

Neel Kashkari

Neel Kashkari

How boring is the board? The Fed has even issued the same policy statements after each meeting with only a few word changes. And the original policy statement was not too exciting, either.

In fact, the Fed has done next to nothing in the three years since Janet Yellen was appointed to chair it. What’s happened over that period? The Fed has increased interest rates twice, by a total of 0.5% to 0.75%.

The latest yawner was in December, when the Fed raised rates by a whole 0.25%. Even the economists and experts predicted that one. Heck, even The New York Times predicted it correctly.

Financial journalists who have the misfortune of covering the Fed attempted to make it a big event. Google “taper tantrum” and you’ll find that virtually every journalist who wrote about the rate increase compared it to the May 2013 “taper tantrum,” which was when then-Fed Chair Ben Bernanke caused the stock market to tank by indicating that the Fed would end quantitative easing … someday. (more…)

Investing Under President Trump

Monday, November 21st, 2016

Is Donald Trump a narcissistic blowhard or an astute businessman with the ability to make America great again?

We will all find out over the next four years, but we should also keep in mind that he will not be running the country by himself. He has a Republican majority in Congress and most states are now run by Republicans (the party that most media were writing obits for a month ago).

trump

Although President-elect Trump is a former Democrat and has expressed support for expanding many government programs, the advisors he has picked to date signal that the regulatory state we’ve lived under for the past eight years will be reined in. That would be good news for the economy and for the markets.

Regardless, he is not Hillary Clinton, who was poised to tack left of President Obama and bring us closer to the socialist state that U.S. Senators Bernie Sanders and Elizabeth Warren have been advocating.

While we worry about his stands on trade and immigration, President Trump will undoubtedly be stronger than President Obama, more bipartisan and more focused on economic growth. In all cases, it wouldn’t take much. (more…)

Deceptive Pricing

Monday, September 26th, 2016

If you had to believe one of the following people, who would you choose?

Heather Bresch, CEO of Mylan, makers of the EpiPen: “The misconception about our profits is understandable, and at least partly due to the complex environment in which pharmaceutical prices are determined.”

John Stumpf, CEO of Wells Fargo: “First of all, this was by 1% of our people.”

Janet Yellen, chair of the Federal Reserve Board: “In general, I would not say that asset valuations are out of line with historical norms.”yellen

Two of the three people above were brought before Congressional committees so they could be scolded by U.S. Senator Elizabeth Warren and other upstanding, ethically pure members of Congress. Which two?

And finally, which of the three people above have had the greatest impact on you and on the economy?

Stumpf Grilled

Mr. Stumpf’s days as CEO of Wells Fargo are apparently numbered, because some of his company’s minions decided to open accounts for bank customers who never authorized them to be opened. This was done by employees to make quotas and earn bonuses. (more…)

Take This Quiz before You Vote

Monday, September 19th, 2016

Citizens of many countries would envy us for having the right to vote, the right to express our opinions, the right to practice whatever religion suits us, and the right to say, do and think pretty much whatever we want.

Yet many of us take these freedoms for granted.  Many people neglect to vote.  Others vote, but shouldn’t because they don’t know what they’re voting for.  While “get out the vote” efforts have become popular, it’s unlikely that anyone who won’t make the effort to cast a ballot is going to make an effort to know what the issues are and where the candidates stand on those issues.  Voting when you don’t know the issues dilutes the democratic process.screen-shot-2016-09-15-at-1-20-35-pm

So take this simple quiz.  Maybe it will help to inform you.  Maybe you’ll decide after taking it that you shouldn’t vote.  And maybe it will just reinforce what you already believe.

True or false.  The Affordable Care Act (aka Obamacare) is making healthcare more affordable.

False. Health insurance is becoming increasingly unaffordable and, shortly after the November election, the new open enrollment period will bring double-digit rate increases for many.  Healthcare costs jumped 1% just in the month of August, which was the largest increase in 32½ years. (more…)

Doubling Down on Bad Ideas

Tuesday, September 6th, 2016

Uh oh.

Until now, about the only thing good you could say about the Federal Reserve Board in recent years is that it hasn’t followed central banks in Europe and Japan by lowering interest rates below zero.

But that may be where we’re going next.

Fed Vice Chair Stanley Fischer told Bloomberg Surveillance last week that he and his Fed colleagues believe that negative interest rates are a legitimate tool for central bankers to use in their efforts to achieve full employment and economic health.Fischer

If by Fed colleagues, he means his imaginary friends, we should be okay.  But if he means his gal pal Janet Yellen et al, look out below.  Over the cliff we go.

Negative rates would be doubling down on failed policies. If you’re a political figure, like Fed Chair Yellen and her Fed brethren, it would be anathema to admit that you’re wrong about anything, so if something doesn’t work, you rationalize that you just didn’t pour enough gasoline on the fire and you pour more.

Anyone who has to pay for health insurance will recognize the doubling-down approach being used in the coming election by the Democrats who gave us Obamacare. The Affordable Care Act, to the surprise of no one who is not a Democratic member of Congress, has become unaffordable, with a majority of exchanges shutting down because they are losing money. But, with premiums increasing by about 30% this year in some states, Democrats believe the answer is more government control of healthcare. The insurers, of course, are the bad guys, because they are no longer willing to lose billions propping up Obamacare. (more…)

The Fed’s Multi-Trillion Dollar Ponzi Scheme

Monday, August 22nd, 2016

“You loan me ten bucks. I photocopy the bill four times, give you back one of the copies, and announce that we’re square. That’s monetizing the debt.”                                                                                                                                                                         From Lionel Shriver’s The Mandibles

In the private sector, it would be called a Ponzi scheme.  When the Federal Reserve Board does it, it’s called “monetizing the debt.”

The Balance explained that, “The Federal Reserve monetizes debt any time it buys U.S. Treasuries. When the Federal Reserve buys these Treasuries, it doesn’t have to print money to buy them. It issues credit and puts the Treasuries on its balance sheet. Everyone treats the credit just like money, even though the Fed doesn’t print cold hard cash.”united-states-money-supply-m1@2x (1)

The process lowers interest rates, because the bonds taken out of circulation reduce supply, driving demand higher. But if reducing the supply of bonds drives prices higher and interest rates lower, shouldn’t more dollars drive the value of the dollar lower and the price of goods higher?

Logically, if you were to double the supply of money tomorrow, a dollar should be worth half of what it is worth today.  Prices would double, so the rate of inflation would be 100%.

And yet even with boatloads of new money, the inflation rate has barely budged.  The M1 money supply, which includes cash, checking accounts and other liquid monetary assets, is about 245% higher than it was eight years ago, when the Federal Reserve Board began its easy money policy.  Meanwhile, the Fed has been reluctant to increase interest rates in part because it has not been able to reach its targeted inflation rate of 2%. (more…)