Today, the Federal Reserve announced a 0.25% interest rate increase. It’s the 1st increase in approximately 9 years. Going forward, the expectation is a 1.0% increase in each of the following years, 2016 and 2017. For those with variable rate loans, check your January statement/disclosure for the rate increase. The next few years should be interesting, particularly for those who have only experienced a historically low interest rate environment.
Liftoff - Fed Announces Interest Rate Hike
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I think that ramp is very aggressive as is their supposed target near 4%, as 90% of the developed world is at a very low rate. We would be hard pressed to achieve that without causing a recession mid 2017 if lucky to get that far...unless of course something crazy happens world wide to juice the global gdp.
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I don't think that interest rates will rise very far at all in the next year or two. I know that "it's hard to make accurate predictions, especially about the future", but a recent article pointed out that interest rates on bonds were historically in the 2% range from the 1800's going forward, and only in the mid 20th century did they rise higher. The article went on to suggest that we may have returned to those low interest rates now. Perhaps it took a while for the international monetary system to adjust to paper money and to going off the gold standard. In any case, I think all bets are off when it comes to rates in the future.
I think the Fed will be responsive to market conditions. If job creation drops, inflation doesn't meet its target level, GDP drops, etc, the fed will respond.
They will be, just saying the dot plot was overly aggressive, and since that has been the case for years now no one really believes it. I think their aim was to calm asset mispricing in the market and possibly get ahead of what they see as eventual economic growth (lets hope so). I personally think theyve done about all they could do as far as monetary policy, its not as if any rational person expects that to magically cure things on its own without the obvious fiscal policy to promote growth. I just think they have turned slightly market hostile which is probably a good thing to keep risk activity lower than it has been and from becoming another problem.
Not sure I've seen anywhere realistic that suggests an expectation of 1.0% rise in each of the next 2 years. Everything I've seen points to maybe another 1 or 2 bumps of 0.25% over the next year and see how it goes. I would be beyond shocked if the fed rate was 2.25% by the end of 2017.
My personal best guess is the rate will be at 0.50% in December 2016 and 1.00% in December 2017.
The fed's projections are rates at 1.4% end of 2016 and 2.4% end of 2017.
http://www.marketwatch.com/story/fe...nals-4-interest-rate-hikes-in-2016-2015-12-16
My thoughts are the fed will be responsive to any slow down in economic conditions.
They most definitely will. Its better to look at the "dot plot" of expected rates by the fed which is more a spectrum of probabilities than a foregone conclusion. For what its worth prior dot plots showed us already lifted off with normalized rates for 2015 in prior years plots. That has not materialized and I am unsure whether their 2018 ones will either, and its changed with every meeting and digestion of new data anyways so its very fluid.
Here is an article with the new (and sept) dot plot showing a slower ramp but ultimately similar long term rates. Whats interesting is while everyone says low rates are abnormal, it actually seems the higher rates of the recent past were the real aberration in long term data.
http://www.businessinsider.com/fed-dot-plot-december-2015-2015-12
While those are the individual members guesses right now, most watchers don't see anything close that happening. And as mentioned, the recent past suggests their own guesses have been wildly high recently. Their actual votes each quarter have been much more pessimistic than they each guessed ahead of time.
It's going to be a wait and see sort of thing.
edit: here's picture view of how their future estimates have dropped over time recently....
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And as expected, the fed today has now lowered their expectations for the future. End of 2016 guess has dropped from 1.4% to 0.9%, end of 2017 guess has dropped from 2.4% to 1.9%.
They are still probably being overly optimistic on how quick the rates will rise IMHO.
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Yes, they are recognizing our position in the global economy a little better, which is good, we dont need to create a problem. Interesting thing is wages and inflation has finally kicked up in the US, and if it continues they will be in a difficult position. Other issue is due to world economy, our bonds are still very expensive since the rest of the world going negative makes ours (they already were) even more so the best place to park cash in the world. Interesting dynamic.
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Rate hikes? 
Try negative rates and helicopter money.
Try negative rates and helicopter money.
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When you realize that increasing the interest rates would explode the debt, you start to realize that rates probably aren't going much of anywhere any time soon.
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These podcasts are great. Here's Albert Edwards known for his call on the Asian bubble back in the day. He and Raoul Pal talk about the current bubble, the one in central banker omnipotence. Muwahahah! All things doom!
http://www.macrovoices.com/156-rvtv-encore-albert-edwards
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Check out the price of gold in the Nigerian currency. NGN. Pull up a one year chart and you can see the interventions to keep gold down by the central bank.
http://goldprice.org/
I imagine we'll see the same shenanigans over here in the USD when our time comes.
http://goldprice.org/
I imagine we'll see the same shenanigans over here in the USD when our time comes.
why exactly do they care what the price of gold is? It's a commodity. They can't control the price except as they can control the exchange rate of their currency with others.
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No, gold is not a commodity, though many financial analysts lump into the category. It is not money, it is not an inflation hedge. It's something else in the modern central banking system.
Many think inflation is what drives gold. That's only half of the driver. The other half is what is the real yield of financial assets vis-a-vis inflation expections. For if bonds are perceived to yield more than 2% above CPI then gold will not do well. ( See Barsky-Summers) In fact, gold may actually underperform the CPI and the commodity complex as inflation ( money supply) flows into financial assets. Like a cavitating torpedo engendering an air bubble about it, fiat currency/bonds accomplish a similar feat. Everything's hunky dory until debt fails to offer a real yield above 2% or debt saturation makes further debt counter-productive. Then the fiat bubble collapses like it has with this debt saturation we have now. The store of value function then is relegated to gold.
Why do central banks hold gold? It's the reset mechanism to get the fiat torpedo up to cavitating speed again. By revaluing gold like FDR did ( he didn't go high enough) the systemic debt is devalued and made serviceable and real positive rates can exist without crushing the system. Gold now serves a Tier Naught Prime Capital on central bank balance sheets. It's central banks' deflation hedge at the end of a Kondratieff Winter.
Ben hinted at this in his 2002 speech. https://www.federalreserve.gov/boarddocs/Speeches/2002/20021121/default.htm
You just linked an article which has nothing to do with gold and our current monetary system. Pointing out what would happen if you had a gold standard currency is irrelevant to today. A government can't "revalue" gold today in any way. You can devalue your own currency in relation to gold by printing more, but gold can be traded in other currencies.
It's a commodity. It's held by central banks because they hope it will retain value and be able to be sold easily to other central banks if/as needed.
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Did you read Ben's speech?
Did you realize the Fed and USTreasury still value gold at 42 dollars per ounce? They can always revalue gold by conducting GOMO, Gold Open Market Operations. All they have to do is set a bid/ask spread wherever they choose. Be it 4950 bid/5050 ask or 49500 bid/50500 ask. They have the printing press. They can set the price to wherever they like in order to heal their balance sheets. That's the end game here. I mean, what has the Fed been doing in the bond market all these years? It has set the price of US debt at an artificially high price. Even though overt QE ended, it still taking place thru intermediaries. Just look at the TIC report.
http://plata.com.mx/Mplata/articulos/articlesFilt.asp?fiidarticulo=281
http://www.gata.org/node/6989
Yes, I read the entire thing. I don't think you did, or at least you don't understand it. You do realize that the Fed can value the gold on the balance sheet at any number they want but it is irrelevant. They can call it $1 an ounce or $5,000,000 an ounce, but it doesn't change what they can sell it for in another currency. They only have control over the value of the dollar, not the gold.
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What you are missing is that when a region revalues gold, it in effect is devaluing its currency. Other countries would have to follow suit and let gold prices rise in their currencies or else the arbitrage will drain their gold reserves.
China has been accumulating massive amounts of gold, officially and unofficially. It now has the SGE physical contract up and rolling and the RMB gold fix established. When it suits her, China could set a much higher price band for gold in RMB but still keep the Yuan/USD exchange rate in the same 2%daily price band. That way she can effectively devalue the RMB and still tell the USTreasury it's not a currency manipulator.
http://www.tfmetalsreport.com/blog/6845/guest-post-real-reason-china-buying-worlds-gold-avery-goodman?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+TFMetalsReport+(TF+Metals+Report)
It's changing the value of your currency, not the gold. end of story.
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So if we are heading to a debt deflation/debt default ( in spite of helicopter money...it will fail) and gold will be revalued to heal balance sheets of sovereigns and central banks, to which asset class is wealth moving? Bonds or gold?
What they will be doing is really an accounting gimmick. A sort of debt for equity swap. In order to account for losses in sovereign bonds that will go into the recalibration of the price of gold.
i give up. if you want to continue to obfuscate please go ahead but the issue is very simple and straight forward.
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This might help. What is unfolding is the unwinding of leverage ( the claims in the system). But base money is only a fraction of what is needed to meet these claims. Gold revaluation will create the base money needed. A monstrous number will be needed indeed.
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It's over. The debt game is over.
http://www.bloomberg.com/news/artic...loat-new-currency-system-safety-net-at-confab
http://www.bloomberg.com/news/artic...loat-new-currency-system-safety-net-at-confab
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http://finance.sina.com.cn/roll/2016-08-03/doc-ifxunyya3123993.shtml
The use of the gold market functions open up "along the way" along the country's physical gold cycle
"Second, the price of gold to achieve diversification of RMB, is conducive to the formation of RMB gold pricing. Historically, gold pricing largely in Europe and America. Along the country to participate in China's gold market, the yuan will become a new force in the market price of gold, imported from the United States and Europe to break our gold situation, so that diversified sources of physical gold, gold prices RMB diversified pattern is formed on the objective, thus help us grasp yuan gold pricing. In the sharp exchange rate fluctuations irrational, our government can adjust the yuan price of gold, the price of gold to maintain the yuan's stability, the objective of the RMB exchange rate formation support."
The use of the gold market functions open up "along the way" along the country's physical gold cycle
"Second, the price of gold to achieve diversification of RMB, is conducive to the formation of RMB gold pricing. Historically, gold pricing largely in Europe and America. Along the country to participate in China's gold market, the yuan will become a new force in the market price of gold, imported from the United States and Europe to break our gold situation, so that diversified sources of physical gold, gold prices RMB diversified pattern is formed on the objective, thus help us grasp yuan gold pricing. In the sharp exchange rate fluctuations irrational, our government can adjust the yuan price of gold, the price of gold to maintain the yuan's stability, the objective of the RMB exchange rate formation support."
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I agree with the rest of your posts, but small correction: gold is absolutely money, by definition. What we have come to believe as money (US Dollars) is actually currency. Currency, by definition, has no long-term store of value, and history shows that all currencies eventually devalue to their intrinsic value: zero.
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I mean it's not money in that we shrimps aren't going to back using gold coins as currency. It's really in today's modern age central bank fail-safe base money. When they finally realize they can't mark debt to fantasy valuations anymore and the big players are positioned ( China has enough), then all will hold hands together and tender a new valuation for gold to create the base money required.
Did you catch Brodsky's latest?
http://www.zerohedge.com/news/2016-08-10/back-square-one-why-financial-system-needs-reset
Currency is worth whatever faith people have in the government backing it have. If your definition of history is listing the failed governments of the past, well then by definition they failed. If your definition of history includes the present governments/currencies, than a bunch of them have not devalued to zero.
If you the US government fails and anarchy rules, we will all have bigger problems than gold will solve. In fact, in a situation like that gold has almost no value since nobody is going to want it. Things like ammunition and food and water and land have infinitely more value.
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Erik Townsend and Aaron Chan welcome Paul Brodsky to MacroVoices. Erik and Paul discuss:
http://www.macrovoices.com/189-paul...ion-and-the-need-for-a-financial-system-reset
- The necessary global reset due to insurmountable leverage
- Views and outlook for U.S. Treasuries despite obvious sovereign insolvency
- Signals for exiting the bond market bubble
- The opacity of currency and monetary issues in Europe
- Current monetary policy environment as slow-motion "water torture" for the global economy
- The false deleveraging narrative when viewed in the light of base money
- The possibility of central banks printing money to buy gold
- Thinking behind owning gold bullion relative to gold mining shares
- Oil's role in U.S. Dollar hegemony and likelihood of change
- Scenarios including disinflation, followed by hyperinflation
http://www.macrovoices.com/189-paul...ion-and-the-need-for-a-financial-system-reset
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Another step closer to the revelation of gold's true function in today's modern central banking system.
http://www.zerohedge.com/news/2016-...balance-sheet-it’s-pretty-dangerous-situation
Can a central bank go bankrupt? Actually not and it's not because they have a printing press. That's only half of it. The real reason is its gold reserves. Gold revaluation is how they heal their balance sheets. Remember to backstop the bond markets these central banks are buying bonds at all time historic highs. What happens when rates normalize? Uhhh, not pretty.
http://www.zerohedge.com/news/2016-...balance-sheet-it’s-pretty-dangerous-situation
Can a central bank go bankrupt? Actually not and it's not because they have a printing press. That's only half of it. The real reason is its gold reserves. Gold revaluation is how they heal their balance sheets. Remember to backstop the bond markets these central banks are buying bonds at all time historic highs. What happens when rates normalize? Uhhh, not pretty.
When they raise the rate this week to 0.50% I'm going to high five myself for my awesome prognostic skills
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They've been predicting bond rate hikes for years. Just because the fed says it'll do it doesn't mean they'll do it. And even if it does happen it'll be so minimal and slow that it won't even matter. Barely a blip in the long run of investments
They did hike in December, but it was the fed funds rate, they dont set the bond rates. Those are set by the market which is of course influenced by the ff rate. Things will depend on what real inflation does and if/how much the fed allows the economy to run hot to make up for lost inflation or if they try to keep in front of it (which seems to be their choice right now).
