The problem with economists is that they are just a bunch of academic statisticians with no real world or business experience. They don't really know about how the economy or business works. Even worse, for our times, is that they know nothing of finance and the world of wholesale global finance. Everything in finance has changed and the Federal Reserve keeps showing the same ignorance and making the same mistakes.
The "eurodollar" and it's various derivatives took over the world from about 1990 until 2008, funded the US housing, debt and equity bubbles (confounding Greenspan), crashed in 2008/09, but was partially and temporarily resurrected until about 2013. It's has been shrinking ever since. It's in full collapse in 2016 and taking world commerce with it. See the chart below for the big picture view.
The "Eurodollar" has been the real money supply to the world for over 20 years and it's collapsing now. That's why every country is struggling to find money and dollars these days.
The Fed and Yellen apparently know nothing about this.This is why they are completely lost. They are willfully blind! And their "Keynesian" money manipulations are not working at all. And after years now of total and utter failure, evidence showing their continued failures is called "transitory" by our schoolmarm chairwoman.
Evidence of the demise of the "Eurodollar," crashing again like 2008, is revealed by distress at Morgan Stanley, Credit Suisse, Deutsche Bank, Barclays, RBS and other money center banks especially in Europe. All have been cutting dividends, raising capital repeatedly and firing employees in the past year. Their earnings have turned into huge losses as they exit the leveraged "Eurodollar" markets as fast as they can. The fact that the stock price of Deutsche Bank is cratering day after day to new post-2009 lows should be understood as a canary in a coal mine. Since "eurodollars" are a bank balance sheet phenomenon, this "money" is disintegrating or disappearing world-wide and taking down every asset class with it. It explains the commodity collapse, China's collapse, oil's collapse and soon the world economy.
Into all of this, Yellen just tightened liquidity!!
"Eurodollar" FICC trading, repos, reverse-repos, interest rate and currency swaps/forwards/etc are virtually the entire basis of international trade. When a company in Sweden buys something from a company in Japan, their banks buy and sell "dollar" currency forwards/swaps to fund the transaction. Their traded "instruments" becomes part of the "Eurodollar" derivative complex which exists on (or off) bank balance sheets as "derivatives".
There are few dollars backing "Eurodollars". It's substantially unregulated and there are few margin or reserve requirements. It's nearly pure leverage. The problem is that, in times of crisis, like in 2008, there's no safe place to go --except to hold dollars. Thus the "eurodollar" system is essentially a huge dollar "short". That's why demand for dollars has driven the dollar sharply higher in the past year -- especially against weaker currencies like the Brazilian Real, Indonesian Rupiah, Mexican Peso, etc. There is a struggle for liquidity worldwide as this leverage collapses. The world is short of dollars in a $trillion QE world!
Commerce and trade is predicated on this market functioning normally. When it doesn't, there's a huge problem like in 2008 when world trade came to a standstill. Now, the "Eurodollar" market is not functioning again as banks like Morgan Stanley and Deutsche Bank scramble to exit these markets as fast as possible. The real economy is suffering and world trade is shrinking in 2016. No one knows enough to address the problem. So economic damage is ongoing and accumulating. And it won't stop until the underlying problem is addressed. By then, I'll be too late.
Yellen and all the "economists" (statisticians?) at the Fed apparently don't really see what's happening. Why else would they have raised the Fed Funds rate and withdrawing liquidity in the middle of a building dollar liquidity shortage? They literally don't know what they're doing. The Fed's complete failure to accomplish any of their goals such as creating 2% inflation, or to create a solid recovery, continues. Everything that confounds Janet is labeled "transitory". That song is getting real old.
She, and all the other central planners in the world don't know what they're doing.
Monday, February 1, 2016
Here's just a taste of what a "new" American Revolution would look like. Also see my blog entry "56 Items on America's To-do List"
- Lower corporate taxes and bring back jobs from Asia.
- Drastically improve border control, and track all immigrant's location, contact info and all other immigration info in a national database accessible by law enforcement all over the country. All long-term visa holders should report to immigration every 90 days to update current info.
- Reform immigration with "point system" to prefer English speakers, persons with college degrees, and those persons with unusual talents or accomplishments in arts, science, math, engineering (STEM) or athletics. No more asylum abuse, no more catch and release. America needs the 'best of the best' not the 'worse of the worse' which is Obama's ridiculous approach.
- Pass laws to outlaw "sanctuary cities" with penalties of jail time for all top city officials and councils.
- Pass a national right-to-work law.
- End Unions at all levels of government; local, state and federal. Because of unions, Federal workers are collecting more pay than private sector when considering benefits. Even FDR didn't believe that unionism belonged in the public sector.
- Get rid of the Federal Reserve. Central banks all over the world are a bunch of fools that will bring ruin to our country and the world. They are so out-of-control and so stupid. Get rid of them.
- Get rid of the carbon regulation mandate at the EPA.
- Clean house at EPA, SEC and NLRB.
- Get rid of the NSA -- It is out of control (and never will be controlled as "oversight" at the Federal level is a complete joke). It's not helping our security and costing $50 Billion per year and only causes mischief. You ARE aware that they are reading/scanning your texts, emails, watching your phone calls, and monitoring your Internet activity, right? Nearly all of this is contrary to your Constitutional rights. All this and nearly no terrorist attacks stopped.
- Get rid of Dept of Energy-- which creates no energy at all.
- Get rid of Dept of Education -- which doesn't educate a single child.
- Downsize Dept of Housing and Urban Development and Commerce.
- Get rid of TSA and FEMA. TSA doesn't work and has never caught a terroris and misses 95% of fake bombs meant to test them!
- Get rid of ObamaCare and replace it with a premium-support voucher system. Incentivize individual savings accounts, and promote competitive insurance markets. Transfer company-provided health insurance policies to employees so that each employee "own" their policies (and retain them even when they change employment), Companies would continue to provide pre-tax benefits to employees to pay their policies. Work to make policies portable across the 50 States.
- Give states Medicaid money in the form of block grants. Let The States administer this money.
- Give up on the "War on Drugs" We're not winning it. The US hasn't won any war since WWII.
- Legalize Marijuana, regulate it and tax it at the state level. Repeal Marijuana prohibition at the Federal Level. Free prisoners that were convicted on simple possession charges.
- Eliminate ethanol subsidies
- Repeal Bacon Davis Act which increases cost of government (all contractors will pay Union wages, ie., high wages at a burden to taxpayers)
- Get government out of the home mortgage market, sell-off FHA, Fannie, Freddie Mac
- Get government out of the student loan business. Sell off Sallie Mae. End loan guarantees that are creating a bubble in student debt and driving-up tuition prices. Stop it!
- Get government out of the minimum wage business. The fact that they don't adjust it shows they shouldn't set it! Duh!
- Privatize the Post Office. Japan and UK did this recently.
- Privatize Amtrak
- End agricultural subsidies to large corporate farms. This would help to pay for health care premium support mentioned above.
- End sugar price supports keeping sugar prices higher in US and driving jobs overseas
- End electric car subsidies (especially to rich people buying $100k Tesla cars)