You can say, “Everything is great,” all you want. But if it isn’t, it isn’t.
Pundits and politicians keep trying to talk up the economy. They might be able to keep optimism running high for a while, but at some point, expectations will run headfirst into economic reality.
In his most recent podcast, Peter Schiff argued that nobody is ready for the long-term pain that’s ahead. That’s because the mainstream is mostly ignoring the warning signs. By-and-large, the message you’ll get watching CNBC or Fox Business is that “everything is great!” Peter has been hammering on this theme. In an earlier podcast, he noted that everybody is still optimistic about the economy because the stock market is so high.
The Federal Reserve manipulates interest rates, creates money out of thin air, blows up asset bubbles and generally wreaks havoc on the economy. But some people have found an even more insidious problem with the Fed.
It’s not “diverse” enough.
Historian Tom Woods offered up some pretty sharp observations about this latest “outrage” in a recent email. And lest you think this is just a screed against left-wing social justice warriors, he has some sharp words for Republicans too. There’s pretty much bipartisan agreement when it comes to the “indispensable” nature of the Fed.
The Federal Reserve claims to be tightening. According to the conventional wisdom, the Fed will raise interest rates at least three times in 2018 – maybe even four. And last fall, the central bank announced its plan to begin shrinking its balance sheet.
But have you actually looked at the Fed’s balance sheet? Dan Kurz of dkanalytics.com has. In fact, he has dug deep into the Federal Reserves opaque world of financing and concluded all of this talk of shrinking balance sheets and normalized interest rates is pure fantasy.
As sure as night follows day, before all too long the world’s leading central banks will be abandoning both fledgling interest rate increases and QT fantasies (reducing the size of their balance sheets by selling bonds and stocks) out of ‘status quo necessity.'”
Jerome Powell came out pretty hawkish in his public debut yesterday. The new Federal Reserve chairman said he sees little risk of recession and reaffirmed plans to continue tightening the money supply through interest rate increases and quantitative tightening.
My personal outlook for the economy has strengthened since December. I don’t see [the recession risks] as at all high at the moment.”
But there are signals that Powell’s optimism is unwarranted and that the monetary blanket knitted together with nearly a decade of easy money may be about to unravel. In fact, the deceleration in the growth of the money supply orchestrated by the Fed matches the trend just prior to the 2008 crash.
Mises Institute academic vice president, and Pace University professor of economics Joseph Salerno explains in an article originally published on the Mises Wire.
During a podcast last month, Peter Schiff asked a key question: who is going to buy all of the debt necessary to finance the ballooning US deficit?
In his most recent analysis, Dan Kurtz at DK Analytics explores this question more in-depth and comes to generally the same conclusion.
The dollar has lost more than 8% of its value over the last year. That decline may accelerate as bond investors sell ahead of a huge expansion in Treasuries coming into the market. Interest rates will have to climb significantly. The price of bonds will drop. As Dan put it, where bonds go, stocks follow.
We’ve excerpted some key points from Dan’s report.
Just over a week ago, President Trump delivered the State of the Union speech. The president gave a speech with a decidedly optimistic tone. This was certainly welcome with the increasingly fractured and divided American political landscape. But it’s important to focus beyond the political theater and take a hard look at where the US economy really is and where it is heading. Unfortunately, the political rhetoric doesn’t always line up with economic reality.
As the GOP tax plan wound its way through Congress, we argued that it is not going to create the kind of economic benefits promised without some reduction in the size and scope of government. We don’t just need tax relief, we need government relief. But there don’t appear to be any serious efforts to cut spending or to reduce the size of the federal government on the horizon. In fact, it looks like D.C. is hurtling in the exact opposite direction. With tax reform in the rearview mirror, Pres. Trump has set his eyes on a federal plan to “fix” America’s infrastructure.
This is a Keynesian boondoggle of epic proportions. And as Ryan McMaken shows in the following article originally published at the Mises Wire, it isn’t even necessary. We don’t need a federal solution to the infrastructure problem. Not for practical purposes. And not to “stimulate” the economy. In fact, the borrowing and money printing that will be necessary to finance whatever plan the politicians in D.C. come up with will compound the country’s economic woes.
We talk a lot about how central banks serve as the primary force driving the business cycle. When a recession hits, central banks like the Federal Reserve drive interest rates down and launch quantitative easing to stimulate the economy. Once the recovery takes hold, the Fed tightens its monetary policy, raising interest rates and ending QE. When the recovery appears to be in full swing, the central bank shrinks its balance sheet. This sparks the next recession and the cycle repeats itself.
This is a layman’s explanation of the business cycle. But how do the maneuverings of central banks actually impact the economy? How does this work?
The Yield Curve Accordion Theory is one way to visually grasp exactly what the Fed and other central banks are doing. Westminster College assistant professor of economics Hal W. Snarr explained this theory in a recent Mises Wire article.
We’ve done extensive reporting on the GOP tax reform bill as it’s moved through Congress. We’ve highlighted a number of concerns about the plan, specifically the significant expansion of the national debt it will cause. Yesterday, we explained how the impact on the deficit will likely be even bigger than expected because of the incentives found in the latest incarnation of the plan. Most significantly, we’ve echoed Peter Schiff’s view that the plan isn’t really tax reform. It’s tax cuts masquerading as reform.
But all of this leaves an important question unanswered. What would actual reform look like?
Mises Institute senior fellow Mark Thonrton offers some ideas in his latest piece at the Mises Wire. In a nutshell, shrinking the size of government is a key ingredient necessary for real reform.
Last week, Pres. Donald Trump nominated Marvin Goodfriend to fill a vacancy on the Federal Reserve Board of Governors. When we reported the news, we called him “another swamp creature” – a member of the Washington D.C./Wall Street clan Trump promised to drain away.
We’re not alone in our thinking. In an article on the Mises Wire, Tho Bishop called Goodfriend’s nomination “a dangerous act of outright betrayal to Trump’s core constituency of working-class voters.”
It’s true Goodfriend’s views on monetary policy don’t fit in with the current Fed status quo. But that’s not a good thing. Goodfriend isn’t a fan of the conventional radical policy of quantitative easing. He’s actually a proponent of an even more radical policy.
Following is Bishop’s analysis in its entirety.