Does Mega Money Result in Dead Weight Debt?

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The Fed reacted to the Great Recession with a large scale increase in the monetary base. This creates expectations ranging from runaway inflation to a concern that a recession will follow. Many have moved to the investing sidelines as a result of the uncertainty. The response to money is more credit at low interest rates. The net outcome depends on whether this stimulus results in real investments that generate income streams that retire the incurred debt. If the real investments do not pay for themselves, there is only short term gain and long term pain.

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It’s a Whole New Ballgame: The Fed Has Been Stymied: (Part 1)

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To prevent a reoccurrence of the 2008 financial meltdown, the banks of the G-20 countries must now operate under new rules that encourages substantially higher cash holdings. This changes both the banking systems outcomes as well as our learned reflexes about the Federal Reserve’s ability to generate economic stimulus. Basically, this accounts for the muted response to the Federal Reserve’s efforts to restore economic growth and inflation. Get used to it.

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The House of Cards: EU Edition

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Negative interest rates pursued by central banks of distressed economies are more of a problem than a solution. They bleed investment income from financial institutions already facing asset write-offs. Currently, this is the quandary of Italy and its banks facing bankruptcy. Though a bailout is the norm for depositors of democratic socialist governments, Italy will be hard pressed to do so given budgetary and EU constraints. In this case, exit from the EU becomes an alternative.

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The Mad Genius of the Zero-Forever Bond

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That the developed world’s governments are accumulating outsized debt shouldn’t be news to anyone. Unless there are some tricks up the government’s sleeves — and they are tricksters — there will be defaults. And here is the trick: force regulated financial institutions to buy and hold zero-rate perpetuity government bonds that pay neither interest nor principal. It’s the equivalent of repudiation without default at the expense of private wealth. We are well on the way to that.

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Bond Refugees Flee to Stock Lands

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Tension is building among stock investors. Stock prices have levitated while the most fundamental determinant of stock price support— an uplift in corporate earnings — has gone soft. But on the other side of the ledger is the resolve of central banks to support asset prices. Will market logic or central bank buying prevail in these crosscurrents of stock price levitation?

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Negative Interest Rate Neverland

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In the wonky world of central banking, the Rx for reviving an economy comes down to reducing the cost of credit so that borrowers are tempted to borrow and spend. These notions, taught in central banking academies called graduate schools, are well-learned but not applied wisely. Negative interest rates put lenders on the road to extinction with profound consequences.

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A Grand, Simultaneous Financial Bust: Asian Contagion II

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In the early days of open global capital markets, capital was attracted from the developed economies to the low-wage emerging markets with the promise of building a manufacturing base to export to the developed world. This capital surge was short-lived as capital plunged in at a faster rate than the new facilities could be up and flow revenues. It all came to a screeching halt when capital sought to repatriate. This was knowns as Asian Contagion. The year was 1997. The recent commodity, currency and stock market plunge are all related and known as Asian Contagion II, with the differences only in the details.

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Tell Spellman It’s an Art, Not a Science

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At the moment, the question of whether or not the Fed should be raising interest rates has become a much ballyhooed event for which every investor, financial writer, and taxi cab driver has an opinion. It’s supposedly based on the best estimates of what money variables need to be in order to align aggregate spending with the upper supply side level that won’t trip off too much inflation. While the Fed would like to be scientific about it, the dramatic effects of globalism places the decision more in the realm of art than science and the Fed is not comfortable with art.

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The US Growth Machine is Red Taped to Death

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We can chastise the Federal Reserve for being unable to get itself to move off of a zero interest rate (because doing so has harmful side effects), but the Fed has no other way to influence the economic growth machine. Only Congress and a President do, and the Fed would be doing us a service to state so publicly.

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