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Central Bankers are Doomed

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I wish we had more common sense like this going around!

http://www.telegraph.co.uk/news/2016/10/17/central-bankers-have-collectively-lost-the-plot-they-must-raise/

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Posted by MachineGhost
Posted on 11/04/2016 1:03 AM
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William Hague is the former foreign secretary and a former leader of the Conservative Party of the UK. “In 2008 the central banks reacted to a massive crisis they had completely failed to foresee by cutting rates to record lows and embarking on “quantitative easing” – pumping trillions of dollars into their economies by buying up the assets of commercial banks. The trouble is that eight years later they are, to varying degrees, still doing it.” So he says (I think this is the main point) “When pension funds renege on promises, or inequality widens further, or savers become desperate, huge public and political anger is gong to burst over the heads of the world’s central banks.”

I don’t think this speculation supported by the data. This does not seem to be happing as pension funds are have become less of a factor in the USA, except for federal government pensions and social security. The latter two are backed by a payer that can never run out of money, Uncle Sam. Household debt is less of a problem (these folks are not net savers anyway). The corporate sector has taken on more debt in dollars, but it’s much less costly to them compared to 2008. So where is the dread and doom data? I can’t find it. I like having slow and steady growth. My speculation is that this type of “business cycle” will last for years and years. Unless the CB’s raise rates and try to help the banks instead of the non-bank private sector. http://www.federalreserve.gov/releases/z1/Current/z1.pdf

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    • Household Debt Service.jpg
    • Corporate debt as percent of market value.jpg
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    Posted by Dennis
    Answered on 11/04/2016 9:38 PM
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      William Hague is the former foreign secretary and a former leader of the Conservative Party of the UK. “In 2008 the central banks reacted to a massive crisis they had completely failed to foresee by cutting rates to record lows and embarking on “quantitative easing” – pumping trillions of dollars into their economies by buying up the assets of commercial banks. The trouble is that eight years later they are, to varying degrees, still doing it.” So he says (I think this is the main point) “When pension funds renege on promises, or inequality widens further, or savers become desperate, huge public and political anger is gong to burst over the heads of the world’s central banks.”

      I don’t think this speculation supported by the data. This does not seem to be happing as pension funds are have become less of a factor in the USA, except for federal government pensions and social security. The latter two are backed by a payer that can never run out of money, Uncle Sam. Household debt is less of a problem (these folks are not net savers anyway). The corporate sector has taken on more debt in dollars, but it’s much less costly to them compared to 2008. So where is the dread and doom data? I can’t find it. I like having slow and steady growth. My speculation is that this type of “business cycle” will last for years and years. Unless the CB’s raise rates and try to help the banks instead of the non-bank private sector. http://www.federalreserve.gov/releases/z1/Current/z1.pdf

      Attachments:
        • Household Debt Service.jpg
        • Corporate debt as percent of market value.jpg
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        Posted by Dennis
        Answered on 11/04/2016 9:38 PM
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          There is an ongoing underfunding crisis with pension funds in the USA (and Europe) as well as with insurance companies. They are a huge part of the economy, but a much bigger problem in terms of pensions for overpaid public retirees than private. Worse, they’re still projecting 7% annual portfolio growth after seven years of ZIRP and QE that have suppressed fixed income yields (that they use to match duration liabilities) and moved capital gains up into the present (i.e. overvaluation) given the moribund economic growth. Just as Roche says, zero or low yields is deflationary because it reduces income to financial asset holders. What more proof do you need? No one can make a profit with artificially negative or low yields with liabilities and inflation growing several multiples higher.

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          Posted by MachineGhost
          Answered on 11/04/2016 10:02 PM
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            Legally, the USA cannot print money. You’re banking on the Primary Dealer-Treasury-Fed charade for the Fed to monetize up any unsold Treasury issuances… that is if Congress first authorizes more spending rather than first reforming and/or reducing pension and SS benefits (don’t forget the Federal government backstops private pensions via the PGC as well). And without any negative market consequence from a loss of confidence such as higher yields and higher inflation. There’s no free lunch.

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            Posted by MachineGhost
            Answered on 11/04/2016 10:08 PM
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              I understand that the low-interest rate environment negatively impacts the non-W2 earnings of the rich folks. Sorry about that.

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              Posted by Dennis
              Answered on 11/05/2016 3:30 AM
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                Don’t be so narrow minded. Low rates negatively impact literally everyone. Capitalists provide risk capital to job creators who then provide employment to non-job creators. They’re not going to do that if they can’t get a return due to low yields, a lack of opportunities, rising regulatory compliance costs and rising tax burdens. You don’t have to be rich to be a capitalist and you don’t have to be rich to be retired and living off virtually nonexistent interest income or co-dependent on bankrupting public and private pensions/insurance/annuity contracts.

                Let me make the reality more tangible. Single-payer Medicare Part B (medical services) currently costs around $150 a month in premimum and it is “voluntary” to join at your assigned retirement age, but if you do not (without utilizing a few exceptions where you still have other coverage) you will incur a 10% cumulative penalty each year along with a further cumulative 1% per month penalty for also not enrolling in a Part D prescription drug plan. To earn $150 a month in interest income requires a whopping $180,000 in capital at current 1% yields. To put that in perspective, the mean average savings of an American family is only about $96K but since about half of all families have exactly $0 saved, it is terribly skewed upwards. So then, the overall median saved is only $5K but for those with some savings, $60K. The average Social Security check is only $1341 a month, so $150 is reducing their income by a significant 11.11% and worse, the premium goes up each and every year. Fortunately, by law, the premium can’t go up more than any Social Security COLA adjustement.

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                Posted by MachineGhost
                Answered on 11/05/2016 3:25 PM
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                  Forgot to include… if yields were back at a more normal 5%, that median 60K in savings would be producing enough interest income to pay the Part B premium almost two times over. That is significant to non-rich folks.

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                  Posted by MachineGhost
                  Answered on 11/05/2016 3:34 PM
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                    I agree: “To put that in perspective, the mean average savings of an American family is only about $96K but since about half of all families have exactly $0 saved”. Instead, these folks need to pay interest charges on their mortgages. I don’t know who does your arithmetic but folks with large net savings and the banks benefit from higher interest rates, but most regular folks don’t. I posted the chart above showing that very thing. Over this low-interest rate period, the costs of household debt service has gone way down. This has far exceeded the value that they would have earned on their “savings” even if the rates were back to 5%. BTW those medicare premiums have resulted in a product that has saved my family thousands of dollars.

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                    Posted by Dennis
                    Answered on 11/05/2016 9:19 PM
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                      Household debt is voluntary, though. Medicare isn’t. No one is forcing you into the former situation, but unless you’re one of those rich folks, you’re definitely stuck paying the latter. And that hurts when you can’t earn enough interest income to offset that and other expenses as a retiree. But okay, we’ll worry about the impoverished debtors with no retirement savings… in that case, low yields are a godsend because they made a choice to prioritize the former over the latter. But, they are benefiting at the expense of everyone else and they’re gonna be a gigantic burden on society when they do retire.

                      But wait, there’s more! Medicare premiums don’t cover all of costs. General tax revenues and the payroll tax make up a the other 81%, so its technically worse than private insurance which seems to be able to cover all costs and additionally make a profit (though it seems debatable if they can still manage that with the Obamacare profit cap the way they seem to be pulling out of the Obamacare exchanges).

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                      Posted by MachineGhost
                      Answered on 11/05/2016 10:01 PM
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                        Mr. Machine, you have strayed way off topic, but if I may bring back the question: “[are] Central Bankers Doomed?”, since the future is not what it used to be, may I suggest that the answer is “no”. Massive deficit fiscal spending will force inflation upwards, the central banks will over react hopelessly trying to slow the train by raising rates. The marketing of loans will go into overdrive since the profit$ for loan originators will all of a sudden be yuuuuge. The future will be déjà vu (e.g. 1980), all over again. The good part is that some of this infrastructure spending will be for tremendous walls that attempt to protect our ocean front cities from the inevitable storm surges born from Global Climate Change.

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                          Posted by Dennis
                          Answered on 11/10/2016 11:06 PM
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                            OTOH, if we look at the Modified Taylor Rule, the Fed is hardly doing anything wrong under Bernanke or Yullen but it certainly inflated bubbles under Greenspan several times. So I’m torn. We could just as well replace central bankers with an algorithm because what do we need their subjective human input for???

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                            Posted by MachineGhost
                            Answered on 11/10/2016 11:59 PM
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                              How many times has Cullen written ‘Feed a cold, starve a fever’? In other words, when an economy goes cold, deficit spending can help a lot. An economy on fire would be way better off if deficit spending was reduced. Nothing causes inflation to go out of control faster than borrowed money chasing over-priced assets. Odd are that next year we will see a robust economy being further stuffed with deficit money.

                              Cullen has also written many times, that the powers that the Fed wields, and impact that the Fed has, is very weak compared to the realities of our economy, spending by Uncle Sam, and the investments made by our capitalists.

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                              Posted by Dennis
                              Answered on 11/11/2016 12:08 AM
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                                SEPTEMBER 8, 2016

                                “Feed a cold, starve a fever” is an adage that has been around for centuries. Now a new study in mice finds that it might actually have some truth — but it depends what exactly is the cause of your fever.

                                Loss of appetite is common with sickness. Researchers at Yale University wanted to know why. Is it just a consequence of illness, or does it have some protective benefit we don’t fully understand?

                                Researchers infected mice with either a bacteria that causes food poisoning (e.g. a fever) or a flu virus (e.g. a cold).

                                All the mice began to eat less after falling ill, but some were force-fed food or given pure glucose. After 10 days all the bacteria-infected mice (with a fever), who had continued being fed had died, while more than half that had avoided food lived. But it was the opposite in those infected with the flu (a cold-causing virus): More than 75 percent lived if they had been force-fed, while only about 10 percent lived if they hadn’t. Food was protective against the virus (a cold) but detrimental to the bacterial infection (a fever).

                                “To our complete surprise we found that force feeding was protective” in viral infections, Medzhitov said.

                                Intrigued, the team conducted more experiments and found that glucose, but not proteins or fats, was the dangerous component of foods during a bacterial infection.

                                https://www.statnews.com/2016/09/08/feed-cold-starve-fever-science/

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                                Posted by Dennis
                                Answered on 11/11/2016 1:27 AM
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