When I was a kid, my mom always went shopping on the day after Christmas. She wasn’t going out to spend her Christmas cash on some goody Santa failed to leave under the tree. She went out with the express purposes of buying Christmas cards, wrapping paper and decorations.
But why go out and buy Christmas items the day after Christmas? After all, you’re not going to need that stuff for about 11 months.
The Federal Reserve is in the midst of inflating its third big bubble. During an interview with Greg Hunter last month, Peter Schiff said the third time isn’t going to be the charm.
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.
Pres. Donald Trump has nominated another swamp creature to sit on the Federal Reserve board of governors.
Marvin Goodfriend does not come from the ranks of politicians. He’s an academic – an economics professor at Carnegie Mellon University. But he’s perfectly suited for the role of central planner. He fits right in with the other central bankers running what investment guru Jim Grant once called “the Ph.D. standard” monetary system, as opposed to the gold standard.
It looks like Trump’s pick to chair the Federal Reserve plans to walk in the footsteps of his predecessors.
In other words, we can expect the legacy of Ben Bernanke and Janet Yellen to continue unbroken. That means a continuation of interventionist monetary policy, artificially low interest rates into the foreseeable future, and plenty of quantitative easing when the time comes.
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The Federal Reserve released the minutes from its most recent FOMC meeting on Wednesday and it appears the monster they created has finally spooked the central bankers.
Over the last couple of months, we’ve focused a lot of attention on the stock market bubble. But some analysts say we should be watching the bond market bubble. Last summer, former Fed chair Alan Greenspan issued an emphatic warning: Beware, the bond bubble is about to burst. And when it does, it will take stock prices down with it.
Last week, Mint Capital strategist Bill Blain issued a similar warning.
The truth is in bond markets. And that’s where I’m looking for the dam to break. The great crash of 2018 is going to start in the deeper, darker depths of the credit market.”
As we reported last week, investors are in an era of “irrational exuberance.”
The US stock market is at all-time highs. Meanwhile, market volatility is at lows not seen since the 1990s. In an odd juxtaposition of seemingly contradictory points of view, investors realize the market is overvalued, but at the same time, they believe it will continue to go up. According to a Bank of Ameria survey, 56% of money managers project a “Goldilocks” economic backdrop of steady expansion with tempered inflation.
In an article published at the Mises Wire, economist Thorsten Polleit adds some further analysis and asks a critical question.
Credit spreads have been shrinking, and prices for credit default swaps have fallen to pre-crisis levels. In fact, investors are no longer haunted by concerns about the stability of the financial system, potential credit defaults, and unfavorable surprises in the economy or financial assets markets.
“How come?”
According to data compiled by the Chicago Fed, financial conditions have reached the loosest level in the US since January 1994. This despite Federal Reserve tightening over the last year.
On Nov. 10, the Chicago Fed National Financial Conditions index hit -0.93. As Peter Schiff pointed out in his most recent podcast, that was early on in the dot-com bubble. The Fed has been raising interest rates and talking about shrinking its balance sheet. Why is it that financial conditions are looser now then when rates were still at zero?
Peter said it’s because the Federal Reserve is way behind the curve.
