Have nothing to do with the [evil] things that people do, things that belong to the darkness. Instead, bring them out to the light... [For] when all things are brought out into the light, then their true nature is clearly revealed...

-Ephesians 5:11-13

Tag Archives: Federal Reserve

Dow Crosses 23,000 for the First Time in History

Performance of the Dow Jones Industrial Index ...

Performance of the Dow Jones Industrial Index during Black Monday

This article appeared online at TheNewAmerican.com on Tuesday, October 17, 2017:

The Dow Jones Industrial Average (DJIA), colloquially called “The Dow,” crossed over the 23,000 benchmark level early Tuesday morning for the first time in history. The Dow, which tracks the stocks of 30 major corporations, has gained 25 percent since the election while the NASDAQ (which tracks the stock performance of a vastly larger and more diversified range of companies across the globe) is up 27 percent. The S&P 500 Index (which tracks the stock performance of 500 American companies) is up 19 percent.

The Wall Street Journal had no trouble finding money managers who were willing to comment positively on the news. Mark Freeman, chief investment officer and portfolio manager at Westwood Holdings Group (which invests $22 billion for its customers), told the Journal:

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China is Suffering from the Same Curse as the U.S.: Too Much Debt, Too Little Growth

This article was published by The McAlvany Intelligence Advisor on Friday, September 22, 2017:  

Live video feed of Zig Ziglar speaking at the ...

Zig Ziglar speaking at the Get Motivated Seminar at the Cow Palace in Daly City, California.

When Zig Ziglar was trying to motivate salesmen, he would often tell them that “there aren’t very many problems that can’t be solved by sufficient production.” This, unfortunately, has been picked up by statist economists who have assumed that any production, at any cost, will solve any problem. Put another way, “We can grow our way out from under the massive debt we have. And we can grow the economy by stimulating it with borrowed funds.”

Zig would be appalled:

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As the Fed Shrinks Its Balance Sheet, Nothing Can Go Wrong

This article was published by The McAlvany Intelligence Advisor on Wednesday, September 20, 2017:

Investors and Wall Street gurus, seers, and prognosticators paid attention on Wednesday to the emanations from the Federal Reserve board meeting, hoping to glean more of the details about the “great unwinding” of the Fed’s enormously bloated balance sheet. In June, Fed Chair Janet Yellen suggested that the time was drawing near to begin reducing the Fed’s balance sheet and there were at least two ways to start: letting maturing bonds “roll off” instead of reinvesting the proceeds in new issues, and liquidating, ever so slowly, some U.S. treasuries, starting at $10 billion a month in October. That liquidation would increase on a quarterly basis until it topped out at $50 billion a month.

The goal, it was suggested, was to

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Impact of Fed’s Plan to Do a “QE Unwind”

This article appeared online at TheNewAmerican.com on Tuesday, September 19, 2017: 

English: Official picture of Janet Yellen from...

Janet Yellen

What makes tomorrow’s [today’s – Wednesday, September 20] meeting at the Federal Reserve so interesting to market watchers and bond investors is the likelihood that Fed Chair Janet Yellen will provide more details on her plans to begin unwinding the Fed’s balance sheet: how much, how fast, how soon, and what does it all mean? In addition, she is hoping to placate conservatives in Congress who remain unhappy over the Fed’s intervention in the markets in the aftermath of the real estate collapse that triggered the Great Recession.

In June, Yellen outlined some possible scenarios, which included letting some of the bonds on the central bank’s enormous $4.2 trillion balance sheet simply mature without reinvesting the funds in new issues. She suggested the Fed would also start selling off some $10 billion a month of existing securities, and then raise that amount every quarter until it reaches $50 billion a month. This way, by expanding on her plans, and by slowly — very slowly — shrinking the Fed massive balance sheet, she hopes to avoid another “taper tantrum” that bond investors experienced back in 2013 when then-chairman Ben Bernanke first said the Fed should start reducing some of its holdings of U.S. Treasuries and mortgage-backed securities.

If she provides sufficient clarity, and sufficient caution, Yellen might not only start the process without disrupting the market, but also avoid further criticism from congressional critics who think the Fed stepped way out of bounds in starting the whole “quantitative easing” (QE) program in the first place. In that way — again, if she is successful — she will not only cement into place the Fed as a necessary element in the American economy, but show that further “QE” expansions to meet future recessions are a legitimate tool.

Whether she can pull it off is an open question. Keynesian economist Austan Goolsbee, who headed Obama’s Council of Economic Advisors in 2010 and 2011, said, “The final exam, with the grade yet to be determined, is: can the Fed actually get out of this stuff?”

The Fed has been essentially flying blind for years, moving outside not only its mandate (to maximize labor force participation while keeping inflation under control) but its past experience. Said David Blanchflower, a Dartmouth College economist (read: Keynesian) who was on the monetary policy committee of the Bank of England from 2006 to 2009, expressed it perfectly: “We had no idea what we should buy, how much, for how long … [and] there is no idea on the way going out.”

It was all a grand experiment: expand the money supply to keep interest rates so far below market rates that people seeking income would take higher risks — i.e., dividend-paying stocks, real estate ventures, etc. — and home owners would find it easier to buy houses. This was the Keynesian antidote to the economic collapse. Rather than let the economy right itself by itself (see America’s recession and recovery in 1920-1921), Keynesians suffer the hubris to think they know better than the market, and intervened, resulting in the longest, slowest recovery from a recession in American history.

Once the Fed began to embark on its plan to bail out banks and other financial institutions in the wake of the real estate collapse, there was no going back. When the federal government took over Fannie Mae and Freddie Mac — mortgage insurers that were approaching bankruptcy — it found that it needed to buy up billions of their failing mortgages. That explains why $1.7 billion of the Fed’s balance sheet consists of mortgages and mortgage-backed securities.

But when that didn’t work the Fed adopted the strategy of “quantitative easing” (QE) — creating money to spur spending across the economy — which some observers thought would never end.

But it did end, in 2014, and the Fed has been sitting on its massive pile of government and mortgage debt, waiting for the economy to revive enough so it could be offloaded without major economic disruptions.

The Fed won’t be unwinding its entire portfolio. Instead it expects to reduce it by between $800 billion and $1 trillion over the next few years, leaving in place a balance sheet of between $2.5 and $3.2 trillion. This means that the Fed will never again see days when its balance sheet shrinks all the way back to the $900 billion it had prior to the Great Recession.

Its plan should have little impact on short-term rates. Using the 10-year Treasury as the standard, when Yellen’s plan (assuming it begins in October) kicks in, it might boost its yield by perhaps a quarter of a percentage point. This would be the natural result of increasing supply in a market with a fixed demand. When more is supplied, prices will go down. In the bond market that translates into a mini-interest rate hike.

But demand from abroad for U.S. bonds continues to be strong. Yields on 10-year bonds issued by foreign governments such as Japan’s and Germany’s remain far below U.S. 10-year bonds and so any increase in rates here will only make them more attractive to foreign buyers.

In fact, once Yellen has filled in the details, as she is expected to do on Wednesday, investors and market watchers are likely to express a sigh of relief, and continue the Fed-fueled rally in stocks that began in 2009 and that shows little sign of stopping. Diane Swonk, chief economist at DS Economics, agrees: “The start to reducing the Fed’s balance sheet is an action the markets are ready for. The Fed has laid out a roadmap and there is really a sense of relief to finally get it started.”

Trump Takes Credit for Banner Jobs Report

This article appeared online at TheNewAmerican.com on Friday, August 4, 2017:  

Within 15 minutes of Friday morning’s release of the July jobs numbers by the Bureau of Labor Statistics (BLS), President Trump tweeted: “Excellent Jobs Numbers just released — and I have just begun. Many job stifling regulations continue to fall. Movement back to USA!”

He has good reason to cheer:

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Has Janet Yellen Tripped the Bernanke Indicator?

This article was published by The McAlvany Intelligence Advisor on Friday, July 14, 2017:

Official portrait of Federal Reserve Chairman ...

Official portrait of former Federal Reserve Chairman Ben Bernanke

During a question and answer period following her talk at the British Academy in London on June 27, Federal Reserve Chair Janet Yellen was asked if there could possibly be a repeat of the 2007-2008 financial crisis. She answered:

I think the system is much safer and much sounder [today]. We are doing a lot more to try to look for financial stability risks that may not be immediately apparent, but to look in corners of the financial system that are not subject to regulation, outside those areas in order to try to detect threats to financial stability that may be emerging….

 

Would I say there will never, ever be another financial crisis? You know probably that would be going too far but I do think we’re much safer and I hope that it will not be in our lifetimes and I don’t believe it will be.

Historians will remember similar assurances from then-Fed Chairman Ben Bernanke just before the real estate crash that led to the financial crisis back in 2007:

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Goldilocks Stock Market Making Forecasters Nervous

This article appeared online at TheNewAmerican.com on Thursday, July 13, 2017:  

At the moment, Wall Street investors are enjoying a “Goldilocks” economy: not so hot that it pushes prices up and not so cold that it causes a recession. Translation: Unemployment is low, wages are rising, interest rates are still near record lows, the gross domestic product (GDP) continues to grow (although not as fast as President Trump would like), and inflation is under control.

It isn’t a perfect world, but to Wall Street investors it’s close.

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Do Trump’s Flip Flops Reflect Lack of Constitutional Understanding?

This article appeared online at TheNewAmerican.com on Friday, April 14, 2017:

Pebble massage sandals from Dalian, China.

Flip flops

The mainstream media have rejoiced because they perceive that President Donald Trump has abandoned policies and changed long-held positions that they have considered anathema. Politico said the president has “demonstrated an incredible willingness to bend his past positions, or abandon them entirely. Sometimes he offers an explanation; sometimes not.” CNN called them “stunning U-turns on key issues” reflecting “extraordinary political shape-shifting.”

The “key issues” are Syria, Janet Yellen of the Federal Reserve, NAFTA, NATO, his hiring freeze, China’s currency manipulation, and the Export-Import Bank.

Syria tops the list currently as the president,

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Trump Picks Neocon to Head Council of Economic Advisors

This article appeared online at TheNewAmerican.com on Monday, April 10, 2017:

President Donald Trump announced on Friday that he would nominate Kevin Hassett as chairman of his Council of Economic Advisors. Immediately, Glenn Hubbard, a neocon serving as a visiting scholar at the “conservative” American Enterprise Institute (AEI), piped up to laud Hassett’s nomination and Trump’s wisdom in selecting him for the position: “He’s not just a standard-issue really good economist, [Hassett is] someone who knows how policy works. The tax changes being considered are really aimed at boosting investment, so I think Kevin is exactly the right person.”

He’s the right person if Trump wants someone whose resumé includes stints at the

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Trump Stumbles Again: Appoints Interventionist to head his Council of Economic Advisors

This article was published by The McAlvany Intelligence Advisor on Monday, April 10, 2017:

Cover of "DOW 36,000 : The New Strategy f...

One way to test a hypothesis is to apply it to the real world. Two renowned, highly-regarded, and elite-college trained economists did just that. In 1999 James Glassman, the founding executive director of the George W. Bush Institute (Harvard-trained with a BA in government), and Kevin Hassett, BA in Economics from Swarthmore and Ph.D. in Economics from the University of Pennsylvania, wrote Dow 36,000: The New Strategy for Profiting from the Coming Rise in the Stock Market. So sure were they about their prediction they went on the road to promote it, claiming that “stocks are now in the midst of a one-time-only rise to much higher ground – to the neighborhood of 36,000 on the Dow Jones Industrial Average.”

On December 31, 1999 the Dow stood at 11,497. A little over three years later the Dow closed (on March 6, 2003) at 7,673, a drop of 3,823 points, costing those who bought the book and took their advice one-third of their investment.

But both persisted,

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Growing Pension Crisis Looms Over Wall Street

This article appeared online at TheNewAmerican.com on Monday, March 27, 2017:

Logo of the United States Pension Benefit Guar...

Logo of the United States Pension Benefit Guaranty Corporation

The looming state and municipal pension plan crisis, estimated by Moody’s at $1.75 trillion just a few months ago, has now been adjusted upward to  $1.9 trillion. But that number, according to Bloomberg’s Danielle DiMartino Booth, greatly underestimates the level of underfunding. It’s more like $6 trillion “if the prevailing yields on Treasuries were used.”

Instead, most state and local pension plans use a much higher, more generous, and more deceptive assumed rate of return of between six and seven percent, with some still clinging to a “castles in the sky” eight percent. Those assumptions greatly reduce the pressure on plan sponsors to make proper contributions to fund those plans.

And, according to the investment firm GMO (Grantham, Mayo & van Otterloo),

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President Trump Wants Power to Fire the Head of the Consumer Financial Protection Bureau

This article appeared online at TheNewAmerican.com on Monday, March 20, 2017:

When PHH Financial, a mortgage lender, was fined $109 million by the head of the Consumer Financial Protection Bureau (CFPB), it filed suit against the agency for overreaching its prerogatives. It also demanded that the court dismantle the agency altogether. A three-judge panel of the U.S. Court of Appeals for the District of Columbia ruled last fall that, indeed, Richard Cordray (shown shaking Obama’s hands), the CFPB’s director, did overreach, but that dismantling the agency was itself too much to ask.

Last Friday Trump’s Department of Justice (DOJ) made an unusual move in the case, which has been appealed to the full bench by filing an amicus brief. Said DOJ officials:

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Heritage Foundation Blames Obama Admin. for America’s Economic Decline

This article appeared online at TheNewAmerican.com on Wednesday, February 15, 2017:

The Heritage Foundation minced no words in commenting on its latest Index of Economic Freedom: America’s continuing decline is all Obama’s fault:

America’s standing in the index [now in 17th place, the lowest in history] has dwindled steadily during the Obama years. This is largely owed to increased government spending, [increased] regulations, and a failed stimulus program that enriched the well-connected while leaving average Americans behind.

For the ninth time in 10 years, America’s index has lost ground. Coming in above 80 in 2008, the United States’ current index is barely above 75, tying it with

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Trump Names Jay Clayton, Quintessential Wall Street Lawyer and Goldman Sachs Advisor, to Head SEC

This article appeared online at TheNewAmerican.com on Wednesday, January 4, 2017:

English: Logo of The Goldman Sachs Group, Inc....

In announcing Jay Clayton as his pick to run the Securities and Exchange Commission (SEC), President-elect Donald Trump issued a statement that was both laudatory and a thinly veiled warning to Clayton: “Jay Clayton is a highly talented expert on many aspects of financial and regulatory law, and he will ensure our financial institutions can thrive and create jobs while playing by the rules at the same time.”

And then, as if quoting from the job description Trump no doubt created as he was sorting through prospective picks for the position:

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Trump Likely To Pick Larry Kudlow as Chief Economic Advisor

This article appeared online at TheNewAmerican.com on Tuesday, December 20, 2016:  

Speaking to the Lansing Regional Chamber of Commerce last week, Trump transition team advisor Stephen Moore let the cat out of the bag: The president-elect would shortly be naming Larry Kudlow (shown) as his chief economic advisor. Moore enthusiastically endorsed the pending nomination: “Who better than Larry? He’s one of the great economists in this country.”

Kudlow may be many things, including enjoying a long-running affiliation with CNBC and host of The Kudlow Report, but he is not an economist.

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Civilization’s Thin Veneer

This article was published by The McAlvany Intelligence Advisor on Wednesday, December 14, 2016:  

The dictionary defines civilization as “an ideal state of human culture characterized by a complete absence of barbarism and non-rational behavior.” Rich Galen thinks a better definition is living in a “constant state of positive assumptions.”

Many of those assumptions are coming into question, with many more already proven to be false. One of them is that pension plans are safe, that promises made will be kept, and that the assumptions underlying those plans regarding rates of return on invested assets are reasonable and that they virtually guarantee predictable results.

Those positive assumptions vanished last summer in Athens when

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Boomers Are Retiring, Draining Pension Plans

This article appeared online at TheNewAmerican.com on Monday, December 12, 2016:

Roosevelt Signs The : President Roosevelt sign...

President Roosevelt signs Social Security Act, at approximately 3:30 pm EST on 14 August 1935.

In a moment of surprising candor, Danielle DiMartino Booth, a former advisor to the Federal Reserve, said in a Real Vision TV interview on Saturday that “the Baby Boomers are no longer an actuarial theory. They’re a reality. The checks [from their retirement plans] are being written.”

For years commentators have repeatedly asserted that “when” the Baby Boomers (that generation born between 1946 and 1964) start to retire, they will start using up funds set aside in pension plans, putting those plans into crisis. According to Booth, that day has arrived.

She pointed to the crisis in Dallas that threatens to put the city into bankruptcy, and the report from Calpers (the California Public Employees Retirement System),

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Final and Buried Reports Reveal Fantastic Government Waste

This article appeared online at TheNewAmerican.com on Tuesday, December 6, 2016:  

English: Official portrait of US Rep. James La...

Senator James Lankford

Senator James Lankford (R-Okla.) issued his second annual Federal Fumbles study last week, totaling $247 billion in wasteful projects and nonsensical studies. When fellow Oklahoma Senator Tom Coburn retired, the job of finding and then criticizing wasteful projects fell to Lankford.

He is up to the task:

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Donald Trump Meets Ayn Rand

The Passion of Ayn Rand

This article was published by The McAlvany Intelligence Advisor on Wednesday, November 30, 2016:  

Ayn Rand passed away in 1982 at age 77 when Donald Trump was just 36. But the astounding success of her masterwork, Atlas Shrugged, led to an interview at the Trump Tower on Monday in the form of one of her most avid fans: John Allison.

Allison, a Phi Beta Kappa graduate of the University of North Carolina in 1971, read a copy of it as a young man and it changed his life. There’s an outside possibility that it might change the life of millions of others.

Following graduation he went to work for BB&T Corporation, a small rural bank in North Carolina. By 1989 Allison was the bank’s CEO. By 2010 he had grown the bank from $4.5 billion in assets to

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Trump Meets With Former Banker Who Wants to End the Fed

This article appeared online at TheNewAmerican.com on Tuesday, November 29, 2016: 

John Allison BB&T

John Allison

Donald Trump met with former banker John Allison on Monday in a meeting that was largely ignored by the mainstream media. It remains unclear whether Allison was being interviewed for the job of secretary of the Treasury or was just giving Trump some advice from a free market perspective.

Either way, it’s a breath of fresh air in an era where statism and excessive hubris (the idea that mere politicians and economists can guide, even stimulate a $20-trillion-dollar economy with monetary policy) has reigned for decades.

Right after graduating Phi Beta Kappa from the University of North Carolina in 1971,

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Many of the articles on Light from the Right first appeared on either The New American or the McAlvany Intelligence Advisor.