An economics, investment, trading and policy blog with a focus on Modern Monetary Theory (MMT). We seek the truth, avoid the mainstream and are virulently anti-neoliberalism.
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Tuesday, April 5, 2011
Signs of the (tumultuous) times.
Gold hits $1450.
Brent hits $122.
The Fed sends a signal that it is planning its exit strategy from low interest rates.
China raises rates for the fourth time.
Trichet talks tightening.
US government shut-down looks increasingly likely.
Here's a novel way the Fed can tighten: increase (substantially) the margin requirements at the commodity exchanges... then see what happens to prices.
They know that or have forgotten it maybe. I don't think it fits their paradigm. They want "the little people" to pay the fare. This is all about wealth transfer to the so-called productive people from "the eaters."
The whole point of the Fed's strategy was to drive up asset prices for the wealth effect. When the Fed withdraws that support, the underpinning of those assets disappears. If the economy has not recovered, and there is little prospect it will, then the house of cards collapses.
That's why a lot of people think there will be QE 3, and QE 4....., with Congress adopting austerity. The Fed could end up having to go fiscal and buy assets other than tsy's as it did in QE 1. There is even speculation whether the Fed will end up buying equities.
This is one reason that gold and oil are going through the roof. People are getting increasingly antsy about holding USD.
Tom,
ReplyDeleteHere's a novel way the Fed can tighten: increase (substantially) the margin requirements at the commodity exchanges... then see what happens to prices.
Resp,
They know that or have forgotten it maybe. I don't think it fits their paradigm. They want "the little people" to pay the fare. This is all about wealth transfer to the so-called productive people from "the eaters."
ReplyDeleteYeah, it's not in their paradigm.
ReplyDeletethe only real 'problem' exit strategy I can see is the one that applies to long positions in commodities and other risk assets....not the Fed
ReplyDeleteThe whole point of the Fed's strategy was to drive up asset prices for the wealth effect. When the Fed withdraws that support, the underpinning of those assets disappears. If the economy has not recovered, and there is little prospect it will, then the house of cards collapses.
ReplyDeleteThat's why a lot of people think there will be QE 3, and QE 4....., with Congress adopting austerity. The Fed could end up having to go fiscal and buy assets other than tsy's as it did in QE 1. There is even speculation whether the Fed will end up buying equities.
This is one reason that gold and oil are going through the roof. People are getting increasingly antsy about holding USD.