Free Republic

(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...