As the world awaits the next round of monetary madness, here is a dire warning about negative shocks, deeper recession and the great threat to financial stability.
Here is what Peter Boockvar wrote today as the world awaits the next round of monetary madness: In a speech titled “Why are interest rates so low? Causes and implications”, Stanley Fischer is premising the speech on “why we should be concerned about such low interest rates.” He raises the possible explanations for why and risks that it entails. Firstly, “the economy’s long run growth prospects are dim.” Secondly, “low interest rates make the economy more vulnerable to adverse shocks that can put it in a recession” which “could therefore lead to longer and deeper recessions when the economy is hit by negative shocks.” Thirdly, “low interest rates may also threaten financial stability as some investors reach for yield and compressed net interest margins make it harder for some financial institutions to build up capital buffers.”…
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He then says this, “Those are three powerful reasons to prefer interest rates that are higher than current rates. But, of course, Fed interest rates are kept very low at the moment because of the need to maintain aggregate demand at levels that will support the attainment of our dual policy goals of maximum sustainable employment and price stability…” This is then followed by an academic discussion on the ‘equilibrium interest rate’ and why it is so low. I’ve touched upon that before in that it’s another feedback loop the Fed is on.
Bottom line, we have another central banker that is raising the risks of rates that are too low (even though he doesn’t give any guidance whatsoever on what the Fed will do with the short end) and particularly in its pernicious impact on grabbing yield at all costs and to bank profitability. Why all of sudden the Fed is so focused on the large risks of rates are so low after raising just once since rates first went to zero in 2008 I don’t know but it doesn’t matter at this point. They seem to want rates higher or at least on the longer end which we have been seeing in order to give some breathing room to the banking system. Kuroda in Japan acknowledged this and Draghi must be considering the banking strains he is now presiding over. Again, sell long term bonds. What will the Fed do in December with this kind of rhetoric? Likely it will depend on where the S&P 500 is trading at when they sit around the conference table.
***KWN has also now released the powerful interview with Gerald Celente and you can listen to it by CLICKING HERE OR ON THE IMAGE BELOW.
***ALSO RELEASED: James Turk – The Coming Financial Storm Will Devastate The World CLICK HERE.
***KWN has also now released the extraordinary interview with John Embry and you can listen to it by CLICKING HERE OR ON THE IMAGE BELOW.
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