Posted on 03/16/2017 3:14:18 AM PDT by SkyPilot
Some fear rate hikes could tip the economy into a recession.
The Federal Reserve on Wednesday lifted benchmark interest rates for only the third time in about a decade, and that has caused trepidation among some market participants.
Lance Roberts, chief investment strategist at Clarity Financial, makes the case in one chart that raising interest rates off ultralow levels during a period of tepid economic growth coincides with recessions in the following three to nine months (see chart below, which compares real, inflation-adjusted, GDP to Fed interest rate levels).
The Fed lifted key rates by a quarter-point Wednesday to a range of 0.75% to 1%. The rate increase comes as the U.S. economy has been growing at a lackluster pace. Government data show that gross domestic product—the official report card of economic performance—was growing at a seasonally adjusted pace of 1.9% in the fourth quarter compared with 1.6% in 2016 and 2.6% in 2015.
“Outside of inflated asset prices, there is little evidence of real economic growth, as witnessed by an average annual GDP growth rate of just 1.3% since 2008, which by the way is the lowest in history since…well, ever,” Roberts wrote in a blog post March 9 (see chart below):
Woeful productivity, defined as the average output per hour of work, has been another bugaboo for economists and the Fed, for the past six years. Higher rates could exacerbate both problems, especially since corporations tend to benefit when borrowing costs are low.
Roberts told MarketWatch in a recent interview that the “Fed lifts interest rates to slow economic growth and quell inflationary pressures.” He argues that outside of a stock market that has been mostly zooming higher, “economic growth is weak.”
(Excerpt) Read more at marketwatch.com ...
So very true. The market has not been based on current economic reality for years, but pumped due to past QE 1 and 2, ZIRP, and other factors. We have several financial WMDs (including derivatives) out there now, and it seems that Yellen, the Fed, and globalist forces want to burn down the house and crash the economy, rather than allow Trump to succeed.
If the economy was barely growing with interest rates near 0% then it’s safe to say that the U.S. dollar doesn’t even have a basis in the U.S. economy anymore. Its value is now driven by foreign interests.
Trump could default on all the debt the US owes to the Federal Reserve Banks and see who is Yellen then.
Honor the foreign debt holders, just cut the Bankers out.
This https://realinvestmentadvice.com/the-questionable-state-abusive-use-of-economics-part-2/
makes too much sense.
“The continuous and immediate democracy of the price system is what calls into question the results of artificial adjustment schemes — those results being that any adjustment to this voting system would, in effect, benefit a small group of individuals at the expense of the larger group; yet this is the nature of the adjustment schemes championed by all sorts of different groups and governments. The adjustments pursued include “parity” pricing, tariffs, “stabilizing” commodities, and price “fixing”, among many others; their commonality is that they disrupt the democratic price system, allow a smaller group to inhibit the desires of the larger group, and are still being used.”
Good point, and the existential question is: what is any fiat currency based upon today?
Without tax cuts, raising rates will cause disaster.
Obama and Soros know this, but Ryan and McConnell are too stupid to realize it or they still carry Obama’s piss bucket.
I remember reading an article several years ago about the need to audit the Fed. If we had, we would have found out how much money was actually going to foreign governments and foreign banks. One insider said it was “shocking.”
If an economy can’t handle a One Percent interest rate, then it it’s not worth trying to save. Let it die. Too much of the stupid money has gone into “it’s like Uber for X” and “it’s like AirBnB for Y” and the newest “revolutionary” “company” which is little more than four guys with a thousand lines of software.
Every globalist looks like a supervillain from a James Bond movie, or Cruella Deville..
The latter. This is another way for the Uniparty to weaken and try to take down Trump.
This article is nothing more than a conclusion desperately looking for ways to justify itself.
A 1% or less short term interest rate isn’t “high” by ANY definition.
The use of a 10 year average GDP over the last 10 years (which includes the financial crash and the horrible Keynesian response to it) is useless except for pointing out that liberal solutions don’t work.
If the author wants to come up with reasons for a market crash they need to come up with much better justification.
If it wasn’t a Conservative in the White House, Yellen would say:
Inflation is still small, GDP growth remains weak and even though unemployment has fallen, the actual labor participation rate must be considered. Altogether the data suggests an economy that is not yet ready for an interest rate increase.
Or she could have been totally honest and said:
We’ve got the economy running in a dependence on our financial opium and now we’re going to take it away and make it all look like it’s Trumps fault.
We disagree. The market has not been based on economic reality-—except the REAL valuations of the computerized economy haven’t been CLOSE to properly valued for 20 years.
QE-1, 2, through 20 are still behind the proper values of where our economy isand Trump’s release of “animal spirits” will send it soaring further.
When I grow up I want to be an EXPERT so I can say stupid things and people will believe me.
Stronger economy, more jobs therefore higher interest rates means everything is going to crash?????
Well, I think there is one thing all of us should admit about both the world and the US economy: no one knows what the heck is happening.
We who grew up with classical/Friedman/market economics have to admit that nothing is looking like it should-—much like the Keynesians in the lat 70s had to admit that the Phillips Curve was wrong.
Traditional economics says that high debt/deficits/large money printing means high inflation. That, in fact, is the classic market “correction” for a superheated economy to slow it down and force prices back down.
But we have no inflation really, anywhere: energy is still as cheap as 10 years ago. (If you take taxes out of gas/oil, it’s as cheap as in the early 1990s). Gold, silver, commodities that used to be the bellwethers of inflation show no signs at all. There is a little inflation in food prices, none in wages-—which is really the final measurement of inflation.
So if there are no symptoms associated with the disease of debt/inflation, is the diagnosis really accurate?
My hypothesis-—and it is only that, because I’m not an economist and I haven’t run tests-—is that there was a massive (and I mean globally stupendous) explosion in productivity in the 1990s because of computers. I always use this example: typically “productivity” is measured in a device by comparing its performance to the previous iteration. The classical study was Fishlow and Fogel’s studies of the railroads in the 1800s and how much value they added over steam-powered water transportation or stagecoaches. While somewhat flawed, it pretty much measured apples to apples, namely transportation.
But take the cell phone. It is not just a “better” rotary dial phone. It’s a completely different device-—a calculator, a GPS, a gaming system, a camera, a writing tablet/email and on and on. To properly value a cell phone, you can’t just measure it against a previous phone, you have to measure it against a phone + a calculator + a GPS + a Nintendo + a Nikkon . . .. well, you get the picture.
If I’m right-—and these computer functions acted like this in every industry, not just changing and improving ONE job function but several-—we haven’t begun to properly valuate what has happened. I think that is why QE 1, 2, and the rest are a drop in the bucket and why we still haven’t seen any real inflation.
Very interesting
Thanks for thanks for sharing this!
Why is it we never see a very successful pundit unless they are trying to manipulate the market with FUD?
If there has not been any inflation why has concrete gone from $50 to $150 a yard? A sheet of steel I bought for $38 in 2001 is now $158. These are just two examples off the top of my head. We eat less but spend a lot more on groceries. Not long ago I bought oil for 80 cents a quart.
bmp
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