President Trump has often said that he “created the greatest economy the world has ever seen, until the Chinese virus arrived.”
Maybe some people believe it, but if the economy was so good, why did the Fed keep interest rates at zero and its balance sheet at $ 4 trillion?
President Brags About Third Quarter GDP Growth; However, as David Rosenberg tweeted, “even with the third quarter GDP recovery, a recovery that is now stalling, 2020 is likely to decline with an impression of -4%, by far the worst year for the year. ‘post-war economy.’
Maybe the economy wasn’t so hot. Danielle DiMartino Booth, who previously worked for Richard Fisher at the Dallas Fed, told Raoul Pal on Real Vision,
September 16 , when they launched Not QE. Because the 2s 10 reversal was past the 30 day mark, and they’re like, oh my god, the story says we’re in a recession.
Well, no kidding, we’re in a recession. World trade has contracted throughout 2019. Lacy Hunt will tell you, you have to go back to the double dip recession of the 80s or 2007-2009, around this time, before you have a global trade contraction global. Of course, we were heading for a recession. But it was very slow.
There were the good old days when the Federal Reserve’s balance sheet stood at $ 800 billion in assets. In November 2008, at the height of the Great Recession, the assets of the Fed exploded to over $ 2 trillion. By 2015, the Fed’s total assets had reached $ 4.4 trillion. Of course, when the coronavirus hit, the assets of the Fed grew to over $ 7 trillion.
Some people are forecasting $ 10 trillion by the end of 2020. Who knows? Jerome Powell is pushing for a fiscal stimulus and says his operation has more ammunition if it is forced to use it. DiMartino Booth told Pal,
The Hippocratic Oath is nowhere in the Eccles building. They don’t understand Do No Harm. They do not understand anything. They can not.
And market and market players need to know that the Fed is doing something, because if they don’t, they’re just watching a bunch of insolvent bullshit. So they need to know that something is being done on their behalf. And the reason all Fed officials have called for stimulus spending is that they want $ 3 or $ 4 trillion in new product to buy and continue to aggressively grow the balance sheet.
Put simply, the Fed needs more bond issues to buy.
As it stands, the Treasury issues, the primary dealers buy, then the Fed buys what the rest of the market does not buy. We’re talking about taking major dealers out of the equation, as DiMartino Booth said,
Even if they don’t reopen the Federal Reserve Act of 1913 to allow the Fed to buy treasury bills at auction, which would require the law to change, what difference does it make if – and you see, you see the ticks sink. You see foreign investors pulling out of our treasury market, which means the Fed had to intervene. So, if the Fed is effectively absorbing Treasury issues, why not call it monetization by another name, if it is de facto?
Felix Zulauf, owner and chairman of Zulauf Asset Management, told Grant Williams and Peter Fleckenstein on The final game podcast that the government cannot absorb higher tariffs. He said the world’s central banks must accept whatever paper governments issue. The result by the end of the decade will be a Federal Reserve balance sheet totaling $ 40 to $ 50 trillion. Williams and Fleckenstein gasped when they heard Zulauf say this.
Once the world’s central banks hit their limit, Zuluaf believes sovereign interest rates will be capped and pension plans and individual retirement accounts will be forced to buy the paper.
Negative rates will continue in Europe, leading to a nationalization of banks. The same will happen in the United States, with real interest rates negative for years to come. Negative rates punish banks, Zulauf said.
Today’s social unrest does not surprise Zulauf given the central bank policies that have led to the huge divide between the haves and have-nots. He considers the United States to be the worst in this regard along with Brazil. The result is “the zeitgeist turns left”.
Trump is a right-wing populist / socialist, according to Zulauf. He thinks Joe Biden would work better with European socialists.
This breakup will lead to the formation of more nations over the next twenty years, and even California, with the world’s fifth largest economy, could split up.
It’s an investment scenario unlike anything we’ve seen before. Good luck and be careful.
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