My new podcast episode is out

My new podcast episode is out

Something fucked up when I posted it yesterday. So, here it is.

Kathy Lien, another high paid analyst who doesn't know what the hell she's talking about

Kathy Lien is head of currency strategy with BK Asset Management. (I wouldn't want her giving me strategy. Kathy should take my course!)

Anyway, in this video on CNBC (where else) she is bleating about how the Janet Yellen should reconsider "taper" given the mixed economic data.

It's pretty clear right here that she's another one of these analysts who doesn't know what she's talking about. (However, that doesn't stop BK from paying her a multi-million dollar annual salary.)

Hey, Kathy, taper or its inverse, QE, are just asset swaps: reserves are swapped for reserve equivalents or vice-versa. They do nothing for demand and, therefore, nothing for the economy.

Even worse than Lien is the guy interviewing her (a CNBC host, what did you expect?) who says, "Well, at least the Fed will get some help with interest rates because now that the government deficit has shrunk so much the Treasury will not have to issue so much supply and that will keep rates low.

These people are like the quack "physicians" of the 19th century. Their diagnoses and snake oil remedies can kill.

Somebody shoot me, please!!!

Taper is not the removal of stimulus, it's the opposite

Fed announced it will buy another $10 billion per month in securities. That means monthly purchases down to $65 billion from $85 billion. That means $240 billion of securities remain in the economy, earning interest each year.

At an average of 3% coupon, that means the economy GAINS about $7.5 billion in income. Gaining income is NOT tightening or removal of stimulus.

If the Fed does a $10 billion reduction every month now, that will start to add up quick. For every $10 billion of reduced purchases that equates to about $3.6 billion of new income to the economy. Do the math.

It's stimulus, not removal of stimulus.

The market's got it all wrong.

FOMC statement out — taper is on

In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions, the Committee decided to make a further measured reduction in the pace of its asset purchases. Beginning in February, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $30 billion per month rather than $35 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $35 billion per month rather than $40 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee's sizable and still-increasing holdings of longer-term securities should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee's dual mandate.

Board of Governors of the Federal Reserve System

Press Release: Release Date: January 29, 2014

For immediate release

Thom Hartmann interviews Stephanie Kelton — What the Fed's Taper Plan Means for the Economy

What the Fed's Taper Plan Means for the Economy

Thom Hartmann interviews Stephanie Kelton

Randy Wray — Let The Taper Games Begin

You knew the Fed had to do something or the talking heads on TV would have nothing to talk about. And a Talking Head with nothing to Talk About is a scary thing, indeed. You get Megyn Kelly arguing about whether Santa Claus is really a chubby white guy even though he came from Turkey.

But here was the fear. If the Fed starts tapering, Markets could take that as a Bad Signal. Of course, no one knew what the bad signal would be.

Would it be a signal that the Fed finally realized its multi-trillion dollar balance sheet would generate Zimbabwean hyperinflation, as all the goldbugs tell us?

Or would it be a signal that the Fed was going to hike interest rates and kill the incipient recovery?

You see, the Fed had reached what J.M. Keynes would call the “Nth Degree”, where “we devote our intellegences to anticipating what average opionion expects the average opinion to be. And there are some, I believe, who pratise the fourth, fifth and higher degrees”…. We reached the Nth Degree about 3 years ago.

The Fed actually promoted this nonsense, as it turned policy-making into managing the beliefs of Expectations Fairies. All monetary policy is now about trying to outguess what markets think the Fairies are thinking.

There really is no proactive monetary policy. It is all about trying to manage the Fairies and then doing what the Fairies want the Fed to do.

ROFL

Economonitor — Great Leap Forward

Let The Taper Games Begin

L. Randall Wray | Professor of Economics, University of Missouri at Kansas City

Joe Weisenthal — In One Sentence, Here's Why The Market Surged On Today's 'Taper' Announcement

Wall Street got what it wanted — almost no tightening and an forward guidance indicating that there is none is sight.

Business Insider
In One Sentence, Here's Why The Market Surged On Today's 'Taper' Announcement
Joe Weisenthal

Warren Mosler — Be the Fed

On the Fed's analysis it is stuck between a rock and a hard place.

The Center of the Universe
Be the Fed
Warren Mosler

See also
Matthew Boesler,  Richard Koo: I Can't Find Anyone To Refute My Argument That America Is In A 'QE Trap' at Business Insider

As Warren points out the Fed just thinks it is in a QE trap. The Fed doesn't need to taper and can continue indefinitely to expanded its balance sheet with POMO as long as it pays interest on reserves (IOR) and there is nothing "the market" can do for force the Fed's hand operationally. 

However, The Fed is also aware of public perception and the political dimension, too. Ron and Rand Paul are already maneuvering to block the confirmation of Janet Yellen. And the moron hoards are ready to storm the gates of the Fed, threatening its independence, if not its existence. So the conundrum the Fed faces is not only financial and economic but also social and political.

Another financial genius who thinks excess reserve are a hot potato.

Just you wait.

Business Insider
Gary Shilling: The Forces Are In Place To Propel The Economy Past Full Employment And Into Serious Inflation

Sam Ro

Monetary policy, "taper" have little effect on the economy

William C. Dudley — Reflections on the Economic Outlook and the Implications for Monetary Policy

We have a chicken-egg problem. If the saving rate remains stable, then stronger consumption growth will require a pickup in income growth. But for income to rise, demand must increase. This suggests that there may need to be an impetus to growth from other sectors of the economy to generate a boost in consumer spending growth.

Reflections on the Economic Outlook and the Implications for Monetary Policy
Remarks at Fordham Wall Street Council, Fordham University Graduate School of Business, New York City, September 23, 2013, Remarks prepared for delivery
William C. Dudley, President and Chief Executive Officer
Federal Reserve Bank of New York

Mark Gongloff — These Four Massive Threats Are Hitting Financial Markets All At Once

1. Taper Talk
2. Emerging Market Slaughter
3. Syrian Saber-Rattling
4. Yet Another Dumb Debt-Ceiling Fight

The Huffington Post

These Four Massive Threats Are Hitting Financial Markets All At Once
Mark Gongloff

They still haven't learned a thing

With MMT really breaking out into the mainstream now and dispelling many of the popular myths about economics you'd think some of the more educated and otherwise informed economic pundits and market mavens would stop with their misguided pronouncements and pleadings.(I stopped 11 years ago, when I met Warren Mosler.)

Barry Ritholtz is probably one of the most widely followed market mavens around and he's certainly very smart and seemingly rational as well. That's why it's hard to fathom why he continues droning on with his false understanding of the Fed and monetary policy. (It's not that hard, Barry!)

In this video he talks about why rising rates are "inevitable." He even agrees with the dim-witted Yahoo! Finance host that the Fed "can't continue to buy Treasury securities forever." You can even discern a noticeable amount of frustration in their pleadings as in, "How has this been going on for this long??"

Well, Barry, if you understood MMT you'd know that the central bank can buy government securities in unlimited quantities for as long as it wants. Moreover, the central bank is the rate setter and often uses asset purchases to set the rate or whatever it wants and keep it there for as long as it wants.

This is all due to the fact that a sovereign currency issuing country, with its central bank as agent, is a monopolist in its own money. And anyone who studied monopolies in Econ 101 (chapter 1) probably knows that a monopolist can charge any price it wants.

The very fact that the US/Treasury/Fed pays any interest at all is superfluous. It needn't pay anything for use of its own fiat.

Really, it's not that hard, bro.