Monday, July 23, 2018

Trump appears to be setting up Fed to take fall for next financial crash just as central bank is trying to do the same to him

Late last week there was alot of discussion made over President Donald Trump's comments calling for the Fed to temper its raising of interest rates while at the same time washing his hands of the economy by saying he 'trusts' the Fed's policies over the monetary and financial systems.

“We go up and every time you go up they want to raise rates again. I don't really — I am not happy about it. But at the same time I’m letting them do what they feel is best,” Trump said. 
“I don’t like all of this work that we’re putting into the economy and then I see rates going up.” – The Hill
 As you can see beneath the surface in this statement, Trump is promoting his fiscal policies of tax reform and going after global unfair trade practices as being good for the economy, while also highlighting the fact that it was the Fed's raising of rates back in 2006-08 that led to the bursting of the Housing bubble and subsequent Financial Crisis and Great Recession.

In essence he is trying to insure that when the next financial recession or collapse comes, people remember that the precursor to this was due to the central bank raising interest rates and cutting off credit.

Meanwhile the Fed over the past month has been trying its best to remove itself from the spotlight, especially because both inflation and housing have been reacting negatively to their raising of rates and tightening of their balance sheet.  And in several statements made both at the most recent FOMC meeting and by Fed officials, their language has been including the fact that the economy is turning negative not because of their own policies, but because of the President's trade and tariff wars.
Federal Reserve Chairman Jerome Powell said Wednesday that the central bank has tools it can use to cushion the potential economic fallout from a trade war. But he told Congress the effort could be challenging if higher tariffs push inflation up too sharply. 
If the retaliatory tariffs imposed by other countries slowed U.S. economy, Powell said the Fed could employ its normal tools, such as lowering interest rates. 
But he said that could become complicated if higher U.S. tariffs on foreign products caused inflation to accelerate. That's because the Fed's normal response to higher inflation is to raise interest rates, not lower them. – ABC News
However behind the scenes, and outside their rhetorical jawboning, the Fed is highly cognizant of how the economy and financial systems are really doing and how analysts could very easily put two and two together to show that they are the ones actually creating the next financial crisis.  And you can see this in the fact that they have now removed their live balance sheet report from the FRED website and are claiming to no longer be paying attention to the highly important yield curve which has predicted recessions at a near 100% clip.

However, I wanted to make sure I was viewing the yield curve through the proper lens, so I called Arturo Estrella, a former economist at the New York Federal Reserve, who co-authored several important research papers on the predictive powers of the curve. 
Estrella agreed that the flattening of the yield curve, and, more specifically, an inverted curve, has accurately preceeded every recession the U.S. has experienced since 1968, without fail. The average time from a completely flat, or inverted, curve to a recession is 12 months … in this case, that would suggest a recession by next June. 
The problem, he told me, is that economists today are looking at the wrong curve.
In his research, the curve that was most important involved the spread between the 10-year note and the 3-month T-bill. And while that curve has also flattened, today it's at 98 basis points; it is NOT flat enough to predict a recession next year. He said this is not a red alert … at least not yet. 
Irrespective of all other concerns, and the behavior of all other markets, historically, the 10-year to 3-month spread was the single best indicator of a recession anywhere from 9 months to 15 months down the road. - CNBC
As you can see the former Fed economist outright ADMITS that the flattening and subsequent inversion of the 30 and 10 year yields has correctly predicted recession, but then tries to push the reader towards a less important yield ratio to justify the Fed's opinion that the economy is still just fine and smelling like roses.

Is it any wonder that Greenspan and Bernanke both admitted they never saw the 2008 Financial Crash coming?

Without a doubt, the next recession/financial crash will completely be a result of the policies of the Federal Reserve, who has had complete control over both monetary and fiscal policies ever since Senator Church Schumer surrendered government control and told Bernanke to 'get to work' back in 2010.  But with President Trump now willing to wrest back control over fiscal policies from the Fed, and publicly question their monetary policies as being a problem for the economy, the battle over who is better at scapegoating whom could very well result in either a lame duck Presidency, or Trump getting the opening he needs to audit the central bank, and and remove a great deal of its acquired power.


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