SOUND FOOTING? ILLUSIONS

"Those of a bullish persuasion would argue these dynamics confirm the underlying strength and stability of the U.S. economy. I’ll counter with the view – one supported by Fed data - that massive federal deficits and Federal Reserve monetization have created unprecedented and deeply systemic financial and economic distortions.

An economy on firm footing would be one demonstrating at least a reasonable balance within the real and financial sectors. One would hope to see sound money and productive Credit financing capital investments throughout the economy - liquidity/spending power entering the system primarily in the process of financing economic wealth creation in the real economy (as opposed to financing consumption and asset speculation). "

http://www.prudentbear.com/2013/09/z1-and-doves.html Doug Noland

 

The mere mention of a SLOWING of FED asset purchases down from the current $85B a month would have risk markets convulsing, interest rates shooting higher. SO at the last FED meeting we had a STATUS QUO instead of any even mild change in FED actions and policy.

 

The predictions now for GDP and the REAL economy are weaker for the 2nd half than just earlier this summer? How can this be? New highs in the stock markets, near or record lows in junk bonds and yields in general?

Federal spending and FED asset purchases have replaced SOUND money and investment, which lead to REAL economic growth and solid job formation.....now RISK assets vs home owners equity are where the avg citizens wealth resides.......I don't like the sound of that....

 

I think the FED has now painted itself in a corner, the crack addict economy needs to know there will be NO change in the dose, or withdrawl symptons will surely be manifested.

 

We have the ILLUSION of a real economy and sound policy....imagine that.

 

Duratek

LIFE SUPPORT

Fed doves make case for patience on tightening policy Reuters
The Federal Reserve must be patient in deciding when to scale back bond purchases, top officials said on Friday, with one arguing it could wait "years" to lift interest rates and another suggesting ...

What is bothering the Federal Reserve after holding down Fed Funds rate to 0 going on 5 years....we are "years away" from beginning to normalize interest rates and policies?

Economic growth is barely running at 2%, 5 years into the most dangerous FED experiement in their 100 years history, which has helped to create bubbles on multiple levels, including bonds, gov finance, interest rates, bond yields, corporate debt, stock valuations and who knows what else.

This feels like "in for a penny, in for a pound" policy making. And the model set where we will continue with the same policies even though we are not getting the results we want, so more of the same thing will eventually get us to where we need to be.

Each month adds another $85B that the FED will need to unwind at some point, most of the STIMULUS has found its way into NON PRODUCTIVE areas of economy like STOCKS.

But the new highs in stocks mostly seems to benefit the top 1% of our population, almost as deceptive as the "affordable care act", who has seen their healthcare bills go down?

I do think it could have been worse if the FED did nothing, but by now one would hope we were well on our way to a true healing and growing balanced economy not needing to be force fed $BILLIONS of printed $'s.

It feels like we HAVE NOT healed, but instead have reflated the bubbles and this leads me to conclude...they will BURST again.....my only hope is the fallout is not as bad as many predict it will be.

D

THE NEED FOR CONTINUED FED PROPPING

"Financial Conditions" http://www.prudentbear.com/2013/09/sept-20.html

"As someone who places “Financial Conditions” at the heart of market and economic analysis, I felt Bernanke had opened a real can of worms on the policy and communications front.

From Wednesday’s FOMC statement: “The committee sees the downside risks to the outlook for the economy and the labor market as having diminished, on net, since last fall, but the tightening of financial conditions observed in recent months, if sustained, could slow the pace of improvement in the economy and labor market. The committee recognizes that inflation persistently below its 2% objective could pose risks to economic performance, but it anticipates that inflation will move back toward its objective over the medium term.”

Have Financial Conditions really tightened in recent months? Stock prices have surged to all-time record highs. The S&P500 has gained 7.7% in three months, with Nasdaq up 12.4%. The small cap Russell 2000 has surged 11.3% in three months. The Nasdaq Biotech index has jumped 24.8%, increasing its 2013 gain to 53.3% (2-yr gain of 116%). Internet stocks enjoy a three-month gain of 12.6%. The average stock (Value Line Arithmetic) is up 11.2% in three months. Stock prices indicate the opposite of tightening."

The mere mention of a SLOWING in QE by the FED had sent the markets into a tizzy. Prior to the recent FED meeting, it was widely anticipated that the FED would begin to lightenup the pace of their QE injections from current $85 B amonth to something slighly less. INSTEAD we got NO change to policy because of "tightening financial conditions". Was this mostly the back up of mortgage borrowing costs?

Re-INFLATING a burst bubble will only cause a new bubble to form of even greter proportions. The markets now will not tollerate even the mere mention of a change to the status quo, every month that passes and the staggering growth of the FED balance sheet makes any extracation from this to be less likely where it would not cause a gross reaction.

http://research.stlouisfed.org/publications/usfd/page3.pdf The adjusted Monetary BAse has grown by nearly $1 Trillion from just the start of this year......an historic amount judged against anything in history before it.

Yet 5 years of such actions have not YET brought us to a point where we can begin to see some unwinding, even a slowing of the CRISIS managment of our economy and money??

I think the FED and Central bankers have painted themselves into a corner, the further they went, the further they realized they would have to go. I do not think they know where this goes from here, this is a gross experiement, and we are the Guninee Pigs.

You cannot print your way to prosperity and an economy that can sustain itself, for now I guess we will have to make do with what we have. Not willing to deal with the withdrawl symptoms, the CRACK ADDICT ECONOMY will be continuously fed more drugs.....making the dependency greater, the withdrawl worse....when it comes.

D