October 10th, 2014
in Op Ed
by EconMatters, EconMatters.com
We Cannot Raise Rates Because...
This is starting to become outright laughable if it wasn't so incompetent and irresponsible interest rate policy, or lack of policy by the Federal Reserve. Forget unemployment, GDP, Structural Economic Issues, Wages, or Inflation now the reason the Federal Reserve cannot raise interest rates from recession era levels is because the dollar is too strong. Talk about drawing the line, moving the line back or forward; now the Federal Reserve is trying to redefine what constitutes a 'line' in the first place.
Fed Out of Financial Markets
We are not talking about raising the Fed Fund's Rate to 4% we are just talking about raising rates more in line with basically a normal functioning economy growing at 2 plus percent on an annual basis with an unemployment rate in the fives. If the Federal Reserve cannot raise rates after 7 long years, this either says a lot about their lower rate and QE strategy in the first place, i.e., it hasn't worked, or they need to quit making excuses and raise the freaking rate already. This has gone on long enough; I want the Federal Reserve out of financial market manipulation with absurdly idiotic interventionist policies. There is something seriously wrong if the Federal Reserve cannot raise the Fed Fund's Rate a measly 100 basis points after 7 longs years of ZIRP! Seven years is an entire business and economic cycle, shoot the economy has been at ZIRP for so long it literally could cycle back to recession just because it has been so long, and business cycles have normal patterns of growth and contraction, we did study this in business school, this is economics 101!
Read More >> The Fed Can't Wait For Wage Inflation to Raise Rate
Newsflash: "Imperfect World"
If I hear another idiot dove discuss another obscure reason why they need to continue with ZIRP methodology because Apple had a bad quarter, or Spain has high unemployment, or China is trying to rebalance their economy, or Venezuela has a social system that sucks, or Germany needs to diversify from Luxury Automobiles, or 50 people in Developed Economies die from Ebola, or the Middle East is in conflict then the Federal Reserve should just come out and state that due to an 'imperfect world' they can never raise rates, and the Fed Fund's Rate has now been renamed the ZIRP New Normal Rate for eternity.
Read More >>> Newsflash: Everyone Shops Online These Days!
ZIRP Will Save the Planet!
I heard some analyst come on TV and say Geo-Political turmoil is at unprecedented levels, gee how did the world ever survive two world wars, AIDS, Communism, the Iraq-Iran War, Israel fighting many wars, starvation in Africa, Presidential Assassinations, the Vietnam War, Argentina, Mexican, Russian Currency Bailouts all without a ZIRP Mandate for Lifetime Emergency Measure to save Mankind! If only we keep ZIRP around and investors are enabled to buy more stocks and bonds at any valuation and low of a yield, throwing all risk exposure scenarios out the window, because ZIRP is the Wonder Drug it solves all global problems, and any valuation and yield is justifiable when the money is free under the New World Normal Economic Models of the Federal Reserve.
Unintended Consequences & History of Fed Interventions
Everything has a cost, that is the first lesson the Fed needs to get straight right now, and absurd dovishness has consequences, as I see it there is a tradeoff, and with an economy creating 250k jobs a month, and an unemployment rate under six, it is only a matter of when and not if before wage inflation smacks the Fed where they though they actually wanted to see Wages Rising Faster than Janet Yellen can say $15 minimum Wage for flipping burgers. Gas prices may be giving consumers a break but this just means prices will be raised in retail now that consumers have a little extra cash in their pockets to spend on discretionary purchases until oil makes its next $25 dollar run in the other direction on stronger demand and the next Middle East Crisis. I agree that the Minimum Wage needs to be raised, corporations will exploit as much as you let them get away with, but why do you think the Minimum Wage is so out of whack with the Cost of Living, it is because there has been runaway inflation since the last raise in the Minimum Wage due to excessively loose monetary policies and selective measuring of overall inflation in the economy!
Ask Yourselves Why the Minimum Wage Needs to be raised So Much?
Oh poor Fed the "Official Government Tracked" measure of inflation is under 2%, this is mighty convenient for a body that benefits from lower inflation measures, so that they can continue printing money and creating more asset bubbles that amazingly enough don't turn out right, and then the Fed needs to come to the rescue all over again with additional economic stimulus. The financial markets have become so reliant on Fed Stimulus in what are supposed to be price discovery and value setting mechanisms that they literally don't know how to function without their monthly Crack Infusion from the Federal Reserve. Europe literally is begging for more Crack or they are going to throw a temper tantrum as if 10 basis point borrowing costs isn't enough already. More Crack Stimulus is not the answer for economic problems at the zero bound, and failure to recognize this 'Enabling Central Bank Role' in setting the groundwork for future financial crises in the form of unsustainable asset prices not reflecting the underlying fundamentals of poor Debt To GDP Ratios in Europe, or US Stocks & Bonds unable to sustain themselves without ZIRP Stimulus from the Federal Reserve is the definition of insanity.
The Tradeoff: Deferred Gratification a Sign of Competence
Enough already the world is never going to be perfect, the economy is never going to be perfect but responsible Fed Policy understands this tradeoff, you can raise interest rates sooner and in a more gradual fashion, or wait to raise rates and have to raise a bunch in a short amount of time. And given where asset prices are after 7 years of stimulus which scenario do you think will cause more market instability? What I am referring to is the next financial crisis if the Fed waits to raise rates, i.e., they take the short-term benefit at the risk of the long-term ruin, then they are not only destined for sending the financial markets into a calamitous event, but given all the warnings and recent history of Fed inspired Bubbles Bursting, it seems a deliberate suicidal plan. It seems the Federal Reserve being an independent body accountable to no oversight has to stop; a strong dollar because the US Economy is outperforming its peers is a good thing, and not an excuse to continue ZIRP Madness. I swear next the Doves at the Fed will say that 'Aging Demographics' is a real concern for them, and therefore they might have to keep interest rates lower for a more prolonged amount of time. How did my parent's generation ever survive with a 4% Fed Funds Rate? The Fed has become the local Crack Dealer for Financial Markets!