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Saturday, September 19, 2015

FOREVER ZIRP. THE FOMC CAN'T RAISE RATES BECAUSE THERE IS NO RECOVERY

By now, all know that Federal Reserve Chairwoman Janet Yellen revealed the intention of the Federal Reserve to continue near-ZIRP. Almost all commentators who talk about the Fed Res, the Federal Open Market Committee (FOMC) and the Fed Funds Rate (FFR) seem to miss the big picture.



Action speaks louder than words. Always read the action of the FOMC and never the words of their press statement. The FOMC action says this:

The FOMC members believe the U.S. Economy is still in economic depression, so much so that interest rates must be kept to almost zero for any hopes of commercial bankers who comprise the Fed Res to earn any income. In short, in true terms, credit continues to fall.

In Awaken. You're Living Through the Great Global Depression. It's Here, Worldwide. I Bet You Didn't Know It, I told you there is worldwide economic depression. I showed you the facts supporting my claim.

The press release after the two-day FOMC meeting confirmed what I told you. The FOMC must keep the FFR at rock bottom because of “global economic and financial developments.” By that, the members of the FOMC mean worldwide economic depression.

My True Dollar™ method strips away the effects of prices expressed in current My True Dollar method is the only way to remove the effects of inflation. Seeing prices in True Dollars™ reveals where economies really are.

In their press release, the FOMC made many claims. Here, I list their claims and my commentary.
  • Since July, economic activity has been is expanding at a moderately in recent months.
  • Household spending and business fixed investment have been increasing moderately.
  • The housing sector has improved further.
  • Net exports have been soft. 
  • The labor market continued to improve, with solid job gains and declining unemployment. 
  • On balance, labor market indicators show that underutilization of labor resources has diminished since early this year. 
  • Inflation has continued to run below the Committee's longer-run objective, partly reflecting earlier declines in energy prices and prices of non-energy imports.
All should themselves ask this. If the purpose of the Fed Res and the FOMC is to meet inflation objectives, why can't they after nine years of monkeying around with interest rates?




Also, in their press release, the FOMC rendered an agreed upon opinion. How you should know what they released is opinion of pure guessing by the words of English they wrote. For you, I have identified those words in bold.

Recent global economic and financial developments MAY RESTRAIN economic activity somewhat and are LIKELY TO PUT further downward pressure on inflation in the near term. Nonetheless, the Committee EXPECTS that, WITH APPROPRIATE POLICY accommodation, ECONOMIC ACTIVITY WILL EXPAND at a moderate pace, with labor market indicators continuing to move toward levels the Committee judges consistent with its dual mandate... Inflation IS ANTICIPATED to remain near its recent low level in the near term, but the Committee EXPECTS inflation to rise gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of declines in energy and import prices dissipate...The Committee ANTICIPATES that it will be appropriate to raise the target range for the federal funds rate when it has seen some further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term. 
Either from fear or from stupidity, no reporter who has questioned any chairman of the Federal Reserve after these FOMC meetings and no member of Congress who has who has questioned any chairman of the Fed Res during required four-times-a-year testimony has ever asked a Fed Res chair the exact, precise definition of maximum employment and price stability. What defines maximum employment? What defines price stability? What are the quantitative measures for each?

There should be Federal Law that defines by an exact quantitative measure what maximum employment means and what price stability means.

Interestingly, the FOMC press release contained this passage:

The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in [more] agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. This policy, by keeping the Committee's holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.
In short, the FOMC has said the Fed Res will continue quantitative easing. They will continue to buy U.S. bonds sold by the U.S. Treasury of Congress. To pay for those news bonds, the Fed Res will take its profits from old bonds it bought from the Congress during the past seven years. Of course, workers at the Fed Res by merely tapping on their keyboards, they conjured up checking account credits from nothing to buy those bonds.

A few times in the press release the FOMC mentions economies other than the USA as excuses for their inaction — "Recent global economic and financial developments may restrain economic activity...monitoring developments abroad." The USA economy constitutes 22% of world GDP. Exports from USA sellers only comprise 12.7% of U.S. GDP. If the U.S. Economy is growing as the FOMC members claim, growth should offset any decline in exports.

The FOMC has two chances left before the end of 2016 to raise their FFR target. The first chance comes after the October 27-28 meeting. The second chance comes after the December 15-16 meeting.

Americans are tapped out. They have maxed their credit cards. Xmas shopping beginning on Black Friday, the day after Thanksgiving, will disappoint. Expect a new round of retailers going into bankruptcy in the first quarter of 2016.

I'd bet my speculation on the FFR target not getting raised until after Q1 2016 and perhaps long after that time.