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Federal Reserve

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Why did the Fed raise its benchmark interest rate when inflation is still running below the Fed’s target, workers wages have hardly budged and the economy is not even growing at 1 percent? Yellen was asked that question at a press conference on Wednesday following the release of the FOMC’s statement. Her answer helps to... Read More
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The U.S. economy is weak. Very weak. But the Federal Reserve is planning to raise interest rates anyway. Why? Here’s what’s going on: According to the Atlanta Fed the US economy is expected to grow at a respectable 2.8 percent for the first quarter of 2017 That’s not bad considering that, for the entire year... Read More
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Donald Trump has a plan for dealing with the stock market bubble. Make it bigger. Before the election candidate Trump blasted Federal Reserve chairman Janet Yellen for keeping interest rates too low for too long to keep the economy humming along while Obama was still in office. The president elect accused Yellen of being politically... Read More
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Why is the Fed creating incentives for US corporations to destroy themselves? Why is the Fed pushing insurance companies and retirement funds into bankruptcy? Why is the Fed raising interest rates when inflation is still well below its 2 percent target? Things are not always what they seem. In theory, the Fed’s low interest rates... Read More
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Trump’s economic plan has sent stocks ripping higher for six weeks straight. But what’s going to happen to stock prices when Congress gives Trump’s plan a big thumbs down? Has anyone thought about that yet? And what about the Fed? Does anyone seriously think that Fed chairman Janet Yellen is going to sit on her... Read More
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In Donald Trump’s first four years as president, he will not only choose three judges for the Supreme Court, he’ll also pick five of the seven members on the Fed Board of Governors. It would be impossible to overstate the effect this is going to have on the nation’s economic future. With both houses of... Read More
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Here’s your economics quiz for the day: Question 1– What do you think would happen if you put $3 trillion into the financial system? Question 2– What do you think would happen if you put $3 trillion into the economy? (Via fiscal stimulus for infrastructure projects, extended unemployment benefits, food stamps, etc) If you picked... Read More
Why has the Fed created incentives for US corporations to loot their companies and drive them deeper into debt? Despite four consecutive quarters of negative earnings, weak demand and anemic sales, US corporations continue to load up on debt, buy back their own shares and hand out cash to their shareholders that greatly exceeds the... Read More
The US economy has never been as mismanaged as it is today. Don’t take my word for it, just look at the bond market. On Thursday, the yield on 30-year US Treasuries dropped to a record-low 2.18 percent while the benchmark 10-year Treasury slid to 1.37 percent. (less than 1 basis point above its all-time... Read More
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On Tuesday, the 10-year German bund slipped into the bizarro-world of negative rates where lenders actually pay the government to borrow their money. Aside from turning capitalism on its head, negative rates illustrate the muddled thinking of central bankers who continue to believe they can spur growth by reducing the cost of cash. Regrettably, the... Read More
What do you think this chart means? (The post-recession economy is worse than we thought, Fortune) It means the U.S. economy is in the throes of the lousiest recovery since World War 2. “But how can that be”, you ask? “After all, hasn’t the Fed kept interest rates at zero for seven years while hosing... Read More
Zero rates and QE have stopped working and that has investors worried. Very worried. If you want to know why stocks have been taking it on the chin lately, look no further than the quote above. Mr. Valeri nails it. The Central Banks have lost their touch which is why investors are cashing in and... Read More
America’s richest investors are betting trillions of dollars that the US economy will stay lousy for years to come. Who are these wealthy investors? Bondholders. And their views on the state of the economy are reflected in the yields on long-term US Treasuries. At present, the yields on long-term debt are very low which means... Read More
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Let’s say you lend your brother-in-law, Pauli, 5,000-bucks so he can get his fledgling construction business off-the-ground. Then, you find out a week later that ‘good-old Pauli’ has shot the wad playing the horses at Long-acres and buying cocktails for his loafer-friends at Matt’s Mad Dog tavern? Would you feel like you’d been ripped off?... Read More
When the Dow Jones Industrial Average (DJIA) and S&P peaked in May 2015, investors were still confident that the Fed “had their back” and that any steep or prolonged downturn in stocks would be met with additional liquidity and a firm commitment to maintain zero rates as long as necessary. But now that the Fed... Read More
Why is the economy barely growing after seven years of zero rates and easy money? Why are wages and incomes sagging when stock and bond prices have gone through the roof? Why are stocks experiencing such extreme volatility when the Fed increased rates by a mere quarter of a percent? It’s the policy, stupid. And... Read More
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2016 started with a thud on Monday when news from China sent global stocks into freefall. The Shanghai index plunged 242 points before a system-wide circuit breaker kicked in and trading was halted. All three major US indices followed Asia’s downward slide with the Dow Jones leading the pack with a triple-digit loss on the... Read More
Why is the economy still in the doldrums after 6 years of zero rates and three rounds of Quantitative Easing? It’s because consumers aren’t consuming and there’s too much debt. You see, despite the Fed’s wacko theories about pumping liquidity into the financial system to make investors feel wealthier, people actually have to buy things... Read More
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Imagine your doctor put you on a daily dose of oxycontin, phenobarbital and Quaaludes for six years straight. Then he suddenly cancelled your prescription. Do you think your behavior might become a bit erratic? This is what’s going on with the stock market. It’s trying to shake off six years of overmedication brought on by... Read More
After 6 full years of zero rates and extreme pump-priming that flushed more than $10 trillion dollars into global markets, the Federal Reserve decided that even the slightest uptick in its benchmark Fed Funds rate would trigger enough destructive volatility in emerging markets that it would be better to postpone the rate hike until some... Read More
Why Are Stocks Going Berserk?
If you’ve been following the markets for the last three weeks, you’ve probably figured out that something is wrong. The markets are no longer behaving the way they should, and that has people worried. Very worried. In the last 15 trading days, the Dow Jones has experienced an unprecedented 13 triple-digit days, which means that... Read More
"Margin Call from Hell"
The crisis that began seven years ago with easy lending and subprime mortgages, has entered its final phase, a currency war between the world’s leading economies each employing the same accommodative monetary policies that have intensified market volatility, increased deflationary pressures, and set the stage for another tumultuous crack-up. The rising dollar, which has soared... Read More
Draghi's "No-growth" QE
Let’s say you’re diagnosed with colorectal cancer. But instead of going to a professional for help, you decide to treat yourself with glycerol suppositories and high doses of Vitamin C. Well, then, you’re probably going to die, right? This same rule applies to economics. If you try to reduce unemployment and boost growth by doing... Read More
If This Doesn't Make You Mad...
Why is the Fed threatening to raise interest rates when the economy is still in the doldrums? Is it because they want to avoid further asset-price inflation, prevent the economy from overheating, or is it something else altogether? Take a look at the chart below and you’ll see why the Fed might want to raise... Read More
Unbelievable. On Wednesday, stocks were hammered after economic data showed that the US and global economies were headed for a major slowdown. By mid-day, the Dow was down 460 points before clawing its way back to minus 173 points. It looked like the market was set for another triple-digit flogging on Thursday when the Fed... Read More
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In the Blink of an Eye
Six years of zero rates and trillions of dollars of asset purchases couldn’t stop stocks from falling sharply on Wednesday. All three major indices moved deep into the red, with the Dow Jones leading the pack, dropping an eye-watering 460 points before rebounding nearly 300 points by the end of the session. Risk-free assets, particularly... Read More
Global CBs Secretly Load up on Equities Pushing Prices Higher
Central banks have shifted into stocks and are buying up everything that isn’t bolted to the floor. That’s the gist of the story that breathlessly appeared in the Financial Times about a week ago and swept across the blogosphere like a Santa Anna brushfire. And there’s some truth to it too, if taken with a... Read More
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The New York Times and the Fed's Transcripts
There’s good propaganda and bad propaganda. Bad propaganda is generally crude, amateurish Judy Miller “mobile weapons lab-type” nonsense that figures that people are so stupid they’ll believe anything that appears in “the paper of record.” Good propaganda, on the other hand, uses factual, sometimes documented material in a coordinated campaign with the other major media... Read More
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The Fed's Taper Sends Global Shares and Emerging Markets Tumbling
The selloff that began in May 2013, when the Fed announced its plan to scale back its asset purchases, resumed with a vengeance on Monday as global shares were slammed in heavy trading sending the Dow Jones for a 326 point-loss on the day. The proximate cause of the rout was a worse-than-expected manufacturing report... Read More
Margin Debt Hits All-Time High in December
The Fed’s easy money policies have pushed margin debt on the New York Stock Exchange (NYSE) to record levels laying the groundwork for a severe correction or another violent market crash. In December, margin debt rose by $21 billion to an all-time high of $445 billion. Buying equities on margin, that is, with loads of... Read More
Is This the Big One?
Global stocks were hammered on Friday for a second straight day on news of a slowdown in China and turbulence in emerging markets. The Dow Jones Industrials suffered its worse drubbing in more than two years, tumbling 318 points on Friday to end a 490 point two-day rout. Emerging markets currencies were whipsawed by capital... Read More
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America's Missing Investors
Guess who’s investing in America’s future? Nobody, that’s who. Just check out this excerpt from an article by Rex Nutting at Marketwatch and you’ll see what I mean. The article is titled “No one is investing in tomorrow’s economy”: Now the author seems to believe that the lack of net investment is just a temporary... Read More
It's Closer Than You Think
“We are on the eve of a deflationary shock which will likely reduce equity valuations from very high to very low levels…..it is increasingly likely that one event will be the catalyst to very rapidly change inflationary into deflationary expectations. Indeed, when key prices are already falling across the globe, one should expect one key... Read More
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"Cha-ching!"
Remember how Quantitative Easing was going to “get the banks lending again”? Well, it hasn’t worked that way. In fact, after 4 years of zero rates and $3 trillion in monetary pump-priming, “banks are lending less to small businesses and consumers than before the financial crisis”. (International Business Times) But how can that be, you... Read More
She Knows How the Game is Played
“As a first line of defense, we have a variety of supervisory tools, micro- and macro-prudential, that we can use to attempt to limit the behavior that is giving rise to those asset price misalignments.” Janet Yellen’s circular, Greenspan-like response to a simple question about How the Fed should deal with “asset bubbles”. On Thursday,... Read More
Where's the Outrage?
A former Federal Reserve official who helped the Central Bank manage its bond buying program, dubbed QE, has admitted that the program is a fraud. In a shocking op-ed in Monday’s Wall Street Journal, Andrew Huszar apologized for his role in the Fed’s $1.25 trillion asset purchase program which he described as “the greatest backdoor... Read More
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Escape From The Dollar
Paul Craig Roberts thinks the Fed has backed itself into corner. A rise in interest rates would strengthen the dollar, give the dollar new life as world reserve currency, and halt the movement into gold, but a rise in rates would collapse the bond and stock markets and reduce the value of derivatives on the... Read More
The Trouble with ZIRP
The Federal Reserve presently lends money at a lower rate than anytime in history. In fact, the rate at which the Fed lends money is more than a full percentage point below the current rate of inflation. That means the Fed is subsidizing borrowing. Naturally, zero rates create price distortions which are greatly amplified by... Read More
The White House's Economic Agenda
According to a survey conducted by Gallup on August 15, 2013, Obama’s Economic Approval rating has slipped to 35%. A full two-thirds of the American people are now dissatisfied with Obama’s performance vis a vis the economy. The survey mirrors the results of an earlier poll (Aug 12) which found that a mere “Twenty-two percent... Read More
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The Doldrums
Why was Adolph Hitler able to lift Germany out of the Great Depression, when policymakers in the US--particularly the Fed--have failed so miserably? Let's look at the facts: When Hitler came to power in 1933, the German economy was in a shambles. Millions of people were out of work, a number of large banks had... Read More
Chairman Flipflop Tries to Stem the Bleeding
Well, that didn't take long, did it? It's been less than a month since tough-talking Ben Bernanke threatened to pull the rug out from under the stock market by scaling back on his $85 billion per-month liquidity program called QE, and now, he's done a complete reversal without batting an eye. On Wednesday, Chairman Flipflop... Read More
Why Bernanke's QE Was the Wrong Policy
The stock market rout continued on Monday as shares dropped sharply in markets around the world. China's Hang Seng was particularly hard hit (down 449 pts) following reports on state media of a "moratorium on transfers, online banking, and counters." The Bank of China's aggressive steps to curtail nonbank "shadow" lending, has intensified a liquidity... Read More
Bernanke's Madcap Money Printing Fails to Boost Inflation
"Under a fiat money system, a government... should always be able to generate increased nominal spending and inflation, even when the short-term nominal interest rate is at zero." Ben S. Bernanke, "Deflation: Making Sure It Doesn't Happen Here", November, 2002 The US economy is in a liquidity trap which means that the demand for credit... Read More
Is Bernanke's Bubble About to Burst?
It looks like the Fed will be tapping on the brakes sometime in the near future, although the date has yet to be determined. Stocks headed lower on Monday following an unofficial announcement from the Fed that the Central Bank had settled on a process for winding down its bond buying program called QE. While... Read More
Something is Wrong
The Dow Jones Industrial Average (DJIA) roared to an all-time high on Friday wrapping up a 4-day winning streak and shrugging off grim reports of government budget cuts that are expected to slow growth. The Dow rose 67 points on the day to close at 14,397 passing the previous record set in October 2007. While... Read More
They Have No Idea
Are you ready for a good laugh? The head of the New York Fed wants Congress to grant the Central Bank extraordinary new powers to deal with future financial system emergencies like the bank run that followed Lehman Brothers collapse in September 2008. Here's the story from the New York Times: It's true, congress did... Read More
The Big Drop Off
Has housing really turned the corner? According to Calculated Risk--- the nation's number 1 economics's blog-- it has. Back in February 2012, CR's Bill McBride boldly announced "The Bottom is Here", and, sure enough, prices have been edging upwards ever since. In a follow up post on Wednesday, McBride explained exactly what he means by... Read More
"We're going to kill the dollar"
"How do you solve a problem when you're running a 10% fiscal budget deficit? You are not going to get growth without private sector credit demand. The government's idea right now is that we're going to export our way out of this, and when I asked a senior member of the Obama administration last week... Read More
Quantitative Easing is a Bust
The reason the US economy is still sluggish 4 years after Lehman Brothers defaulted, is of lack of demand. Demand dropped off after the housing bubble burst and has never really recovered. Economist Dean Baker calculates that hit to demand is somewhere in the neighborhood of $1 trillion per year, a sum that's been impossible... Read More
Bernanke's (Latest) Big Mistake
Ben Bernanke has made a serious mistake and the country is going to pay dearly for it. Since 2009, the Fed Chairman has launched 3 rounds of his bond buying program called quantitative easing or QE. He also initiated a similar program called Operation Twist in which the Fed changes the duration of its portfolio... Read More
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