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The Federal Reserve’s seemingly endless program of quantitative easing (QE) begun under Ben Bernanke, and continuing at a slightly slower pace under Janet Yellen, has some of the punditry and much of the electorate up in arms. With good reason. Implicit in quantitative easing is the horribly obtuse notion that central banks can produce real economic growth through their monetary machinations. If only life were so simple. Back in the world of the reasonable, the sole purpose of money is as a stable measure of value that facilitates the exchange of goods and investment. Quantitative easing, by its very name,...

Article based on excerpts from Baupost Group's Seth Klarman letter. "there is a growing gap between the financial markets and the real economy...and the overall picture is one of growing risk and inadequate potential return almost everywhere one looks..."

Like John Stossel and Thomas Sowell, I’m not a big fan of the Federal Reserve. It’s not just that I’m a libertarian who fantasizes about the denationalization of money. I also think the Fed hasn’t done a good job, even by its own metrics. There’s very little doubt, for instance, that easy-money policies last decade played a major role in creating the housing bubble and causing the financial crisis. Yes, Fannie Mae and Freddie Mac played a big role, but it was the Fed that provided the excess liquidity that the GSEs used to subsidize the subprime lending orgy. But...

Unusually harsh winter weather appears to be behind recent signs of weakness in the U.S. economy, Federal Reserve Chair Janet Yellen said on Thursday, suggesting the central bank was poised to press forward in ratcheting back its stimulus. Testifying to the Senate Banking Committee, Yellen said the Fed would watch carefully to ensure weather was indeed the culprit, but she reiterated that it would take a "significant change" to the economy's prospects for the Fed to put plans to wind down its bond-buying program on hold.

When US money supply measured by M2 stood at $11 trillion in December 2013, I calculate that total broad money of the next largest 50 countries ranked by GDP amounted to the equivalent of a further US$67 trillion at current exchange rates. And that’s only on-balance sheet: we must add in global shadow banking, estimated by the Financial Stability Board to have been an extra $67 trillion in 2011, probably about $75 trillion today, given its recent rapid growth in China. So when we look at US broad money supply, we should be aware there is a further mountain of...

There wasn't a lot of volume, but the market shrugged off an early indecision and rallied higher. The bias is to the upside, and despite a shaky start to the year, the long-term trend remains intact, which is very encouraging. Also encouraging is that the market is moving higher, even as the dollar edged higher as conventional wisdom shifts towards the belief; that it's going to take a universally acknowledged disaster or hiccup in the economy, for the Fed to divert from its unofficial goal of monthly tapering. The market moving higher on less Fed accommodation has been the...

WASHINGTON (Reuters) - U.S. central bankers thought they should get more regulatory powers in return for providing cheap cash to Wall Street banks during the 2008 credit crisis, according to Federal Reserve transcripts released on Friday. Powerful investment banks such as Goldman Sachs (NYS:GS - News) and Morgan Stanley (NYS:MS - News) had access to a raft of measures to prop up markets during the 2008 credit meltdown, but the Federal Reserve had little say over them. "I am just a little worried about being taken advantage of here," Richard Fisher, head of the Federal Reserve Bank of Dallas, said...

On Tuesday, new Federal Reserve Chairman Janet Yellen went before Congress and confidently declared that "the economic recovery gained greater traction in the second half of last year" and that "substantial progress has been made in restoring the economy to health". This resulted in glowing headlines throughout the mainstream media such as this one from USA Today: "Yellen: Economy is improving at moderate pace". Sadly, tens of millions of Americans are going to believe what the mainstream media is telling them. But it isn't the truth. As you will see below, there are all sorts of signs that the economy...

In her first testimony before Congress as Federal Reserve Chair Janet Yellen pledged to continue on the path set by her predecessor Ben Bernanke. “His leadership helped make our economy and financial system stronger and ensured that the Federal Reserve is transparent and accountable,” said Yellen in a remarks delivered before the House Committee of Financial Services Tuesday morning.Speaking about the economic recovery, monetary policy and the financial systems Yellen expressed optimism about developments in recent months, but also made it clear work must be done to meet the Federal Open Market Committee’s objectives for the economy.In a note following...

The Federal Reserve (or Fed) has assumed sweeping new powers in the last year. In an unprecedented move in March 2008, the New York Fed advanced the funds for JPMorgan Chase Bank to buy investment bank Bear Stearns for pennies on the dollar. The deal was particularly controversial because Jamie Dimon, CEO of JPMorgan, sits on the board of the New York Fed and participated in the secret weekend negotiations.1 In September 2008, the Federal Reserve did something even more unprecedented, when it bought the world’s largest insurance company. The Fed announced on September 16 that it was giving an...

<p>U.S. equity markets zipped higher Friday after a round of weak jobs data inspired hopes the Fed may take more time to boost rates and cut its bond-purchasing program.</p> <p>As of 9:32 a.m. ET, the Dow Jones Industrial Average rose 53.3 points, or 0.35%, to 15675, the S&P 500 gained 8.5 points, or 0.48%, to 1783 and the Nasdaq Composite advanced 28.4 points, or 0.69%, to 4084.</p>

Stocks were battered on Monday, with investors fleeing equities after factory data cast a negative light on the economy. Article Link: Stocks unravel after factory report

After a blistering four-month rally that took stocks to record highs last year, January could not have been more different, as the Dow Jones Industrial Average (^DJI) fell more than 5%. In the first month of the year, traders worried the financial health of both the U.S. and smaller nations meant stocks were too dangerous to continue owning for the time being, especially after a nearly uninterrupted rise that began in early 2009. Those jitters continued on the first trading day in February, driven by weakness in a manufacturing index from the Institute for Supply Management. By the close of...

The gap between the rich and poor continues to grow. The wealthiest 1 percent held 8 percent of the economic pie in 1975 but now hold over 20 percent. This is a striking change from the 1950s and 1960s when their share of all incomes was slightly over 10 percent. A study by Emmanuel Saez found that between 2009 and 2012 the real incomes of the top 1 percent jumped 31.4 percent. The richest 10 percent now receive 50.5 percent of all incomes, the largest share since data was first recorded in 1917. The wealthiest are becoming disproportionally wealthier at...

This is a very educational show put on by Kin Greenhouse of "It's Rainmaking Time". She is one of the very few who eschew the soundbite driven media economy and chooses the long format, deep dive approach. While it may be too long for ADD crowd, it digs deep into a not so simple subject to foster understanding and comprehension. This was a pretty good show with an interesting cast of guests:

Ben S. Bernanke ascended to the chairmanship of the Federal Reserve eight years ago as a little-known — albeit distinguished — Princeton economics professor who had notched just three years of federal public service. When he takes his leave this week, having presided over his final meeting of the Fed’s policy-making committee, he will depart as one of the finest chairmen in the institution’s hundred year history, having played a central role in averting a financial meltdown and lifting the nation out of recession.

WASHINGTON — The Federal Reserve announced Wednesday another $10 billion cut in its monthly bond purchases in a statement that attributed the decision to “growing underlying strength in the broader economy.” The statement, published after a two-day meeting of the Fed’s policy-making committee, reflected the optimism of Fed officials that the economy is finally poised for faster growth after years of false starts and setbacks. It was the committee’s first unanimous decision since 2011. The Fed said it would expand its holdings of Treasury and mortgage-backed securities by $65 billion in February, down from $75 billion in January and $85...

The United States has become more and more defensive against China because of its rapid development and the change of the comparison of strength between the two countries. "China Threat" theory increasingly attracts much more attention from the US media. Chinese political and economics author Lei Sihai believes that the United States is actively pursuing a "currency war" against China through a puppetry of elaborate political, military and media maneuvering. Using financial instruments as "direct weapons," Lei claims that the United States is gearing up to engage China in a currency battle come 2015 in his new book The Decisive...

People often ask today: if the Fed has created so much new money, why hasn’t it produced more inflation? When the Fed creates masses of new money, it initially flows to Wall Street, which profits from it in a variety of imaginative ways, but from there its path is unpredictable. The Fed inserted into the TARP bill in 2008 the authority to pay interest on bank reserves. Of course this interest is paid by creating even more new money, but it provides an incentive for banks to leave reserves idle. On the other hand, the reserves are not as idle...

The Federal Reserve did something completely unpredicted on Wednesday; nothing. So called “tapering” of QE was indefinitely placed in deep freeze………until such time as the U.S. economy is more robust. Most asset classes shot up energetically. Both the S&P and the Dow closed at all-time highs. SNIP The question to be asked is did these asset classes all react rationally. Continuing to effectively print $85 billion per month of new money after months of telegraphing at least a modicum of reduction can only translate that our economy is frail and infirm, languid if you will. SNIP Up until ten years...

Some may have forgotten, or not be aware, that the Federal Reserve system has its own police force. Well, it does: "The U.S. Federal Reserve Police is the law enforcement arm of the Federal Reserve System, the central banking system of the United States.... Officers are certified to carry a variety of weapons systems (depending on assignment) including semi-automatic pistols, assault rifles, submachine guns, shotguns, less-lethal weapons, pepper spray, batons and other standard police equipment. Officers also wear bullet resistant vests/body armor. On October 12, 2010 President Barack Obama signed into law S.B. 1132 the "Law Enforcement Officers' Safety Act...

"Measures that arbitrarily, or by assumption, assign the bulk of fluctuation in GDP to purely temporary factors may provide poor policy guidance when shocks are more permanent in nature," he said in prepared remarks to the Korea-America Economic Association. ... While gross domestic product growth rose above 4 percent in the third quarter, it has generally stayed closer to 2 percent since the recession ended in 2009, causing some to think that longer-term potential GDP growth is no longer the 3-percent rate to which Americans are accustomed. If that is the case, the Fed's ultra easy policy stance - including...

Arthur Laffer is a legend in Washington, having been the leading voice on President Ronald Reagan's hawkish Economic Policy Advisory Board.  His "Laffer Curve," which argued that there are diminishing returns after a certain point of taxation, was taken as gospel.If his views are not quite as frequent a presence in public debate, it's largely because Laffer's pet issues, regulation and taxes, took a back seat during the George W. Bush and Barack Obama administrations.  But Laffer himself still occasionally makes appearances on the public scene.And in June of 2009, he penned an op-ed warning excessive quantitative easing would inevitably lead...

The Democratic Party gained prominence in the first half of the nineteenth century as being the party that opposed the Second Bank of the United States. In the process, it tapped into an anti-state sentiment that proved so strong that we wouldn't see another like it until the next century. Its adversaries were Whig politicians who defended the bank and its ability to grow the government and their own personal fortunes at the same time. They were, in fact, quite open about these arrangements. It was considered standard-operating procedure for Whig representatives to receive monetary compensation for their support of...

It is little wonder that early Democrats garnered such popular support and would demand Andrew Jackson end America’s experiment with central banking. Jackson called it “dangerous to the liberty of the American people because it represented a fantastic centralization of economic and political power under private control.” It’s hard to believe that guy who said that is now on the $20 bill. Jackson also warned that the Bank of the United States was “a vast electioneering engine” that could “control the Government and change its character.” These sentiments were echoed by Roger Taney, Jackson’s Treasury Secretary, who talked of the...

So who really controls the world? The Illuminati? Freemasons? The Bilderberg Group? Or are these all red herrings to distract your prying eyes from the real global elite? The answer, like most topics worth exploring, is not quite so simple. Have no doubt, there are secretive global powers whose only goal is to keep and grow that power. But it really may not be as secretive as you would think. And that is what makes it even more nefarious. But don't take my word for it, we have both science and insider testimony to back it up. We are going...

"The powers of financial capitalism had (a) far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland; a private bank owned and controlled by the world's central banks which were...

(Reuters) - The possibility that the Federal Reserve could finally start to trim its extraordinary stimulus for the economy could make this week an explosive one for financial markets. Though the odds still point to no major policy change when U.S. central bankers meet December 17-18, most of the recent domestic economic data suggest the beginning of the end of their massive bond-buying program is coming sooner than later. If it acts it may reflect as much a growth in confidence in the global economy, for whom the withdrawal of the flow of cheap dollars will be a shock, as...

A federal judge said Monday that he believes the government’s once-secret collection of domestic phone records is unconstitutional, setting up likely appeals and further challenges to the data mining revealed by classified leaker Edward Snowden. U.S. District Judge Richard Leon said the National Security Agency’s bulk collection of metadata — phone records of the time and numbers called without any disclosure of content — apparently violates privacy rights.

A week from now, the Federal Reserve System will celebrate the 100th anniversary of its founding. Resulting from secret negotiations between bankers and politicians at Jekyll Island, the Fed's creation established a banking cartel and a board of government overseers that has grown ever stronger through the years. One would think this anniversary would elicit some sort of public recognition of the Fed's growth from a quasi-agent of the Treasury Department intended to provide an elastic currency, to a de facto independent institution that has taken complete control of the economy through its central monetary planning. But just like the...

The Federal Reserve Open Market Committee meets on Tuesday and Wednesday of this week. To taper or not to taper, that is the question. Hamlet-to-be-or-not-to-be3 Let’s take a look at inflation thus far. Since 1947, there have been only three periods of deflation where the consumer price index (CPI) has fallen for consecutive months: 1949-1950, 1954-1955 and most recently, 2009. inflationcpi121413 Notice that inflation (as defined by year–over-year changes in the consumer price index) has been declining since September 1981 when inflation hit 11%. The latest measure of inflation is 0.9% YoY for October 2013. At the same time, house...

The Federal Reserve currently purchases $40 billion per month in an effort to keep mortgage rates low and stimulate the housing market recovery (or bubble?). Over the past year, the RMBS index has earned -0.55% in spite of (or because of) The Fed’s $40 billion per month in agency RMBS purchases. And if we compare the BRMBS index to PIMCO’s vaunted total return fund, you will see similar performance until September 2013 when RMBS rallied in terms of price compared to PIMCO’s Total Return Fund. So, despite The Fed’s $40 billion of agency MBS per month, the Bloomberg MBS index...

There are cheers from the media about the latest jobs report. While some speculated that it was so good that The Fed would begin tapering their assets purchases, few noticed that the 10 year Treasury yield actually fell on the jobs report. But let’s look at the longer term picture. House prices are rising rapidly despite declining real median household income. Problem 1: Labor’s share of nonfarm business have been falling for decades, but it’s decline has been accelerating since 2000. laborsharelt No problem, many economists say. The U.S. has been moving towards a service economy for decades. But, …...

The S&P 500 stock market index rose a blistering +1.12% today on positive economic news, albeit much of it seasonal. The run up in stock prices following the collapse in 2008 (both stock market and house prices) has fueled speculation of another Hindenburg Omen event. That is, another stock market correction. But with Ben Bernanke and The Fed supporting asset bubbles with the expansion of The Fed’s Balance Sheet (green dotted line), investors continue to roll the dice on the stock market rising. Likewise, the Elliott Wave is being sustained by The Fed’s Balance Sheet. Let’s see what happens when...

... Quantitative easing has had the intended effect of holding down interest rates, which has in turn encouraged borrowing by businesses and individuals with good credit and stabilized the housing market. But persistent economic uncertainty has dulled the positive impact of the Fed's program. U.S. gross domestic product has broken above a 3 percent annual rate of growth in only six quarters since 2009. Some of the money has instead inflated asset bubbles, to the benefit of mostly wealthy investors seeking high yields. The Fed's "real intention was capital investment would be stimulated, jobs would be created, incomes of the...

The Financial Times reports that “the U.S. Federal Reserve is considering the possibility of arbitrarily cutting the amount of interest it pays on money that it borrows from private commercial banks.” Private banks, of course, make a great deal of money this way. But should the Fed make this decision, banks which have historically paid their customers a small amount of interest for the use of their money may well begin “…charg[ing] private individuals and businesses for the privilege of “parking” their money in an account for a time.” Could such a policy create a bank run? That’s what happened...

The ADP employment report was released today and blew past expectations of 170,000 jobs added with a print of … 215,000 jobs added. Of course, we don’t know the composition of full-time versus part-time/temporary holiday employment, but at least employment increased. Change-in-Nonfarm-Private-Employment-November-2013 In fact, ADP job creation seems to be in a similar point to the previous decade in terms of level of ADP jobs added. Historical-Trend-Change-in-Total-Nonfarm-Private-Employment-November-2013 Here is the composition of jobs added. Notice that is mostly small firms. ADP Dec_0 Will The Fed begin tapering with this “good” news on employment? Well, interest rates are rising this morning...

On December 23rd, the Federal Reserve will turn 100 years old. We can look back on its few successes... but its many failures far outweigh any positives it may have achieved. What's at stake now is the Fed's future. And it looks bleak. In fact, the Fed won't even exist in 100 years... America's First Three Central Banks Central banks and fiat money have been a major point of contention ever since the founding of America. Between 1775 and 1779, as the colonies delved deeper into rebellion, the fiat money supply grew by over 5,000%. Within just four years, the...

Several economic indicators for the US show deceleration. Yet the stock market and house prices continue to grow. Here is a chart of three economic indicators with clear downward momentum: civilian labor force participation (blue), the US homeownership rate (red) and real median household income (green). homessss And Goldman Sachs just downgraded Q4 2013 real GDP growth to 1.3%. These downward indicators compliment the declining M1 Money Multiplier and M2 Money Velocity. m1m2vel120213 Why? There are enormous excess reserves in the Fed system that aren’t leaking out to Main Street. And The Fed’s Balance sheet has exploded! (in terms of...

There is a lot of talk about a new housing bubble. If you look at a chart of house prices, you can see why. cs2009 This is a faster acceleration rate in house prices than during the much-discussed housing bubble of the last decade. csindices112613 Can it continue to accelerate? There are a couple of factors that say no. First, real median household income has been falling since 2000 and particularly since 2009. It is difficult to maintain price growth under these conditions once investors pull out. csrealinc Second, home ownership rates continue to fall …. along with real median...

She’s about to become one of the most influential financial leaders in the world, but a classmate who sat in front of Janet Yellen at Brooklyn’s Ft. Hamilton HS says he was “shocked” at her career path.

In the wake of all the misguided pleas for negative interest rates in Europe (hoping to get banks to lend), comes news US banks warn Fed interest cut could force them to charge depositors. Leading US banks have warned that they could start charging companies and consumers for deposits if the US Federal Reserve cuts the interest it pays on bank reserves. Depositors already have to cope with near-zero interest rates, but paying just to leave money in the bank would be highly unusual and unwelcome for companies and households. The warning by bank executives highlights the dangers of one...

What is driving the stock market to dizzying heights? Try stock margin accounts and Fed Monetary easing. Here is a chart of NYSE Member Firms Debit Balances in Margin Accounts and the Standard and Poor’s Index. margindebtspx And here is a chart of the SPX against The Fed’s Balance Sheet size. spxfedbal You must admit, there seems to be a pattern here. Particularly since real median household income seems to be shrinking (although house prices are rising). cs20realmedhinc Margin accounts + easy Fed money = bubbles.

Two years ago, a few days after the victory of Cristina Fernandez de Kirchner in Argentina’s presidential election, the government decided to impose a new system of foreign exchange controls that the press called “the cepo.” Initially started as an effort to crack down on tax evasion, it became clear later that the new measures were part of another exchange-market intervention by the central bank. In a system of flexible exchange rates, the central bank limits its activities to controlling the money supply. Therefore, the price of foreign currency acts only as an indicator of the correctness or incorrectness of...

The S&P Case-Shiller repeat sales house price indices were released this morning. The U.S. National Home Price Index rose 3.2% in the third quarter of 2013 and 11.2% over the last four quarters. Call me crazy, but the recent expansion of house prices (red) looks faster than the rapid expansion during the housing bubble (orange). The recent rapid expansion of house prices coincides with the unprecedented monetary stimulus by The Federal Reserve. csindices112613 The big winner from August to September? Bankrupt Detroit! And in the LPS house price report from yesterday, bankrupt Modesto showed a good gain. Other winners in...

Leading US banks have warned that they could start charging companies and consumers for deposits if the US Federal Reserve cuts the interest it pays on bank reserves. Depositors already have to cope with near-zero interest rates, but paying just to leave money in the bank would be highly unusual and unwelcome for companies and households. The warning by bank executives highlights the dangers of one strategy the Fed could use to offset an eventual “tapering” of the $85bn a month in asset purchases that have fuelled global financial markets for the last year.

The recent confusion from The Fed over the future of quantitative easing (or money printing) can be addressed with a few charts. Here is a chart of real GDP growth PER CAPITA since 1960. Real, of course, indicates that it is Gross Domestic Product adjusted for inflation. Note that Q1 1984 was the peak of real GDP growth … and it has been a steady decline since then. realgdppercap I added the S&P 500 index to the real GDP per capita chart and you can see that the S&P 500 index spikes when real GDP growth is higher than average...

Yellen currently serves as vice chairman of the Fed and as a reliable dove would represent continuity with Bernanke. She has consistently supported Bernanke’s easy-money policies and even seems open to more aggressive moves to fight stubbornly-high unemployment. "I consider it imperative that we do what we can to promote a very strong recovery," Yellen said during her confirmation hearing. Yet Senate Majority Leader Harry Reid announced plans on Thursday to enact the so-called "nuclear option," which would change Senate rules to allow him to approve certain motions with a simple majority rather than 60 votes. Yellen, who was among...

Still unnoticed by a large part of the population is that we have been living through a period of relative impoverishment. Money has been squandered in welfare spending, bailing out banks or even — as in Europe — of fellow governments. But many people still do not feel the pain. However, malinvestments have destroyed an immense amount of real wealth. Government spending for welfare programs and military ventures has caused increasing public debts and deficits in the Western world. These debts will never be paid back in real terms. The welfare-warfare state is the biggest malinvestment today. It does not...

Janet Yellen has been approved as Federal Reserve Chair by the US Senate Banking Panel. And the Philadelphia Fed Index plunged to 6.5 in November from 19.8 in October. Economists were expecting a read of 15. Philly Fed Nov More troubling in the Philadelphia Fed report is the decline in average employee workweek. Philly Fed Details Oct Of course, Janet Yellen being approved by the Senate Banking Panel has nothing to do with the Philly Fed Index plunge. Or does it? Yellen has been on the Bernanke QE team and we know that it has not been successful restoring life...