Fed taking a lot of shit for not being more “hawkish!” on Art Degree economoron figure of speech “inflation!”…. Meanwhile Fed probably very limited on ability for rate increases due to short term IOR liabilities … if I were Fed and I had to throw the Biden people a bone today I would just say I was going to move up the QT instead of accelerating rate increases…
But maybe Fed can’t do that either because they have already planned for a definitive redemption schedule of their govt securities and they need the coupons due this month… 🤔
$40B Treasury coupon payments due this Monday…
Fed officials face pressure for more aggressive policy action after a hotter-than-expected inflation reading for April https://t.co/9rIZbTHmjw
— Bloomberg Economics (@economics) May 12, 2022
22 comments:
Matt, Mike talks about stock market decline being due to switch to budget surplus. I believe him because it makes sense, but let's say in 2 weeks we switch back to deficit because of social security payment. Then the market rises. What is the mechanism? I mean did all the social security recipients go take their check and buy stocks?
Same thing when market declines did everyone simultaneously sell because government went into surplus? It wouldn't seem there was that direct a relationship.
Don't blame the arts degree people -- STEM folk are equally blinkered and biased. Blame the lawyers, since that is what most Federal Reserve Board members are, and the language they use is merely intended to shape opinion.
Improper academic practice is responsible for all of these problems…
I don’t subscribe to any of the “neoliberal conspiracy!” theories…
Cali i think that is part of it but I’m more interested in what Fed monetary policy does to the regulatory position of the Depository system…
The rate increases and threatening rhetoric has caused a collapse in depository’s HQLA values and depositories have to reduce the price of other risk assets because of this … equities, bonds, etc…
MMT: “all prices are a function of what govt let’s banks (depositories) lend against things”
If govt policy reduces the value of bank regulatory assets then other risk asset prices have to be reduced… to maintain a constant regulatory ratio..
Thanks. But how does that translate to a market decline. The depisitories just mark down the value of their assets right? They don't necessarily sell stocks right?
" the language they use is merely intended to shape opinion. "
Bingo for at least 1000 years.
Matt might understand independence day and Why Americans celebrate it. Yet, never accept that the US now play the role of the British.
Or understand all of this was very well understood in the form of tally sticks or clay tablets long before the US was created.
Or understand why Monetarism was created in education camps and how all empires used money or a type of Monetarism to control and conquer countries from Which they could steal real resources and extract rent. See the Romans for details.
Or Why the English, French and Dutch and Portuguese still own land abroad.
Call it neoliberalism, globalism or a ‘retreat’, ‘hollowing out’ or ‘withering away’ of the state, which in turn has fuelled the myth that today the state has been ‘overpowered’ by the market and it HAS to be like that.
The process of neoliberalisation or whatever you want to call it has entailed extensive and permanent state intervention, including: the liberalisation of goods and capital markets; the privatisation of resources and social services; the deregulation of business, and financial markets in particular; the reduction of workers’ rights (first and foremost, the right to collective bargaining) and more in general the repression of labour activism; the lowering of taxes on wealth and capital, at the expense of the middle and working classes; the slashing of social programmes, and so on.
These policies were systemically pursued throughout the West (and imposed on developing countries) with unprecedented determination, and with the support of all the major international institutions and political parties. In this sense, neoliberal ideology, at least in its official anti-state guise, should be considered little more than a convenient alibi for what has been and is essentially a political and state-driven project, aimed at placing the commanding heights of economic policy ‘in the hands of capital, and primarily financial interests’.
Is real without any shadow of doubt and nothing to do with art degrees. They simply deny and create fairy tales in the education camps to hide the fact it even exists.
Why in the education camps you are taught Robinson Crusoe and Barter instead of the truth. When they fully understand how it really works. Have done for hundreds of years.
https://neweconomicperspectives.org/2013/01/what-is-it-about-money-that-scares-the-bejesus-out-of-people.html#more-4348
Or you can simply call it those with real power v's those who have none.
https://www.opendemocracy.net/en/can-europe-make-it/germany-s-dystopian-plans-for-europe-from-fantasy-to-reality/
Those who have the real power represent and serve the interests of debt owners.
Calicm,
https://d3fy651gv2fhd3.cloudfront.net/charts/united-states-government-budget@2x.png?s=fddsgdp&v=202203231245V20220312&d1=19970518&url2=/united-states/stock-market
Look at the long overview of this chart.
Looks as if there is a correlation ?
But there is so much more to it than simply that chart. If you traded on the basis of that chart above you would have lost your shirt, house and family. As your margin call would have tapped you out at least a 100 times.
Probably sleeping in a cardboard box.
That is if you don't use any leverage and only buy 2% of what was on offer.
The huge swings that nobody can explain will tap you out. Unless you have cash on the sidelines to keep topping up your position. Which sends you to the poor house quicker when the markets simply refuse to turn the way you want.
Even though you have called it right in the long run. You can still very easily get tapped out before the truth shows itself. The zombies can change your address to cardboard box number 3 under freeway 27.
If it was as easy as following that chart we would all be doing it and be gazillionaires.
MMT: “It’s about price not quantity”
Nothing has to get bought or sold for a price to change…
If banks get up tomorrow morning and assess the collateral value of double wide mobile homes at $1M the price of mobile homes goes to $1M with none being sold…
All broker dealers operate under finance terms regulated by the FRS…
If you could before take AAPL shares at $170 to a bank and get $340 against them and the Fed thru monetary policy reduces the regulatory ratio of banks , then the banks have to mark down the value of their margin loan against AAPL shares at 170 and the value of the shares is reduced…
Nobody has to buy or sell shares of AAPL…
The price of EVERYTHING = what a bank will give you against it…
If you look at this chart from 1930's onwards
https://d3fy651gv2fhd3.cloudfront.net/charts/united-states-interest-rate@2x.png?s=fdtr&v=202205101805V20220312&d1=19220606&url2=/united-states/stock-market
If the last 10 years is considered normal behaviour then I am Jessica Rabbit.
If America is turning Japanese like they say it is then it will probably end up looking like this chart.
https://d3fy651gv2fhd3.cloudfront.net/charts/japan-interest-rate@2x.png?s=bojdtr&v=202204280421V20220312&d1=19220606&url2=/japan/stock-market
All the gains made over the last 10 years will suffer the same fate as the gains made in Japan in the late 80's.
The last 10 years of the market does not in any shape way of form represent the last 90 years of the market.
So what changed ?
Will whatever changed stand the test of time ?
Maybees aye, maybees naw.
But I tend to be in the naw camp.
A long drawn out correction is needed over the next 20 years to get anywhere near back to normal market behaviour of the last 90 years. Like what happened in Japan.
But the gangsters are in charge and if Trump wins it will just keep going up and up and up and up on hot air. Until the day of reckoning which can't be avoided.
The day of reckoning Michael Hudson keeps writing about in all his books.
I'm 70% yes the long drawn out correction will happen just like Japan and 30% the lunacy will continue until it can't and financial capitalism is killed off once and for all.
Be interesting to see what happens over the next 20 years. With zero risk attached to the outcome. Will be better than watching netflix.
When Warren Mosler is challenged by the so called experts about his MMT zero policy interest rate.
They say.....
"Look at Japan the zero rates and QE inflated the Japanese stock market "
Warren's reply is always.....
" No they didn't the Japanese stock market went on to lose all its gains"
Will the same hold true for the US?
We'll have to wait and see....
A large chunk of that abnormal behaviour of the stock market over the last 10 years can be split into 3 categories.
Financial crash
Trump winning the election
Pandemic
Not a very solid economic foundation if you ask me. More like an iced over lake moving into spring.
As we move away from a very abnormal 10 year period back into a 30 year period of low economic growth that neoliberalism and globalism provides.
https://d3fy651gv2fhd3.cloudfront.net/charts/united-states-gdp-growth@2x.png?s=gdp+cqoq&v=202204281329V20220312&d1=19970518
Thank you again for the explanation. I follow except the quoted share price of AAPL is determined on the public market so for it to decline to 170 someone would have to sell it right? Or are you saying once banks mark it down other actors will realize it is worth less and sell?
Derek the BOJ has been adding reserve assets to Japan banks incessantly …
Since the CBs get their operating revenues from factoring govt securities, then when CB puts policy rate at (near) zero or zero they have to buy a tremendously increased par value of govt securities to get the revenues they need to operate…
This is what happened in Sept 2008 and March 2020 crashes..,
Take US Fed in March 2020, they decreased the policy rate to 0.05% in face of Covid and short term govt bond yields adjusted to about the same so Fed had to quickly buy an additional 1.25T of govt bonds to have enough revenue to operate.., market crashed 40%… same as Sept 2008… they always crash market when they add $1T of reserve assets to banks as banks don’t have the immediate capital to support another 1T of assets.., so prices of risk assets adjusted down to maintain the constant regulatory ratio…
You guys say “it was a neoliberal conspiracy!” and are believing some sort of Alex Jones conspiracy theory or Tom will say “it’s capitalism!” or some shit… because you are not formally trained in the accounting and applied regulatory mathematics… I assume you all never have been trained properly… easier to remain ignorant than going thru the abstractions… which it’s not like it’s your job I get it … but it IS the regulators job…
Last year Fed revenues were about 110b on 9T of par value holdings… about 1% return on whole portfolio…
They don’t pay IOR on the whole 9T, but you can get the point they can’t wait to roll the portfolio over into higher yielding govt securities via redemptions as fast as they could raise the policy rate to a point where their short term IOR liabilities exceed their short term revenues … ie insolvency…
So they have to measure all of these future revenues vs future liabilities and stay within those limits… but it’s still not clear they know how to do this properly … I think they understand these issues better than Sept 2008 but since they’ve never explained what I am explaining here, there remains some possibility they could create another catastrophic failure of depository system at any time…
Just canned their SOMA manager and sent her to Siberia:
https://www.zerohedge.com/markets/dallas-fed-appoints-head-plunge-protection-team-its-new-president
Never a good sign in general…
Another question:
How does reserve add to the banking system from the Fed change the regulatory ratio?
If the Fed buys Treasuries or other assets from banks to add reserves, isn't that just an asset swap that would not change to total assets banks hold?
Thanks
Matt didn't they change the rules so bank reserves assets no longer count towards the capital ratio? So why would it still affect risk asset prices now?
They suspended it from May 15 2020 to March 31 2021 and helped that rally…
Now it been back on since April 1 2021, equities below the level they were back then…
H.8 report yesterday has Residual now down to 1945b it’s below the level they achieved BEFORE Covid…. Back to 2019 levels they are destroy the balance sheets of the US banks.,,
These lefties here all think this is part of a “vast neoliberal conspiracy!” to destroy bank balance sheets thru mal regulation…
It’s all part of a grand plan by the “neoliberals!”…
Conspirators have to be technically competent else the plan will go awry.
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