Perspectives on the global economic changes

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Neshant
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Re: Perspectives on the global economic changes

Postby Neshant » 29 Aug 2016 00:47

Part II. Part I is up above in the thread.


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Re: Perspectives on the global economic changes

Postby TSJones » 29 Aug 2016 02:33

I am curious as to what the posters on this forum think QE is and if the federal reserve is still practicing it?

the fed has officially stopped QE in October 2014.

according to audited financial reports the assets at the end of 2014 was $4,497,774 trillion.

at the end of 2015, the figure stood at $4,484,765 trillion.

see https://www.federalreserve.gov/monetary ... mt2015.pdf page 5.

clearly at the federal reserve QE has stopped.

the financial reports for 2016 are due sometime next year.

why is this not widely understood?

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Re: Perspectives on the global economic changes

Postby Neshant » 29 Aug 2016 13:51

Norway central bank has bought a load of stocks of various large and mid cap mining companies.

They've filed a request for their purchases not to be disclosed to the public.


http://www.marketslant.com/articles/nor ... isclose-it

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Re: Perspectives on the global economic changes

Postby Austin » 29 Aug 2016 16:56

hanumadu wrote:My take is Schiff, Stockman, Faber etc bet their money on another economic collapse and the fed is thwarting it by endless QE and low interest rates. It doesn't mean they are not right in asking for a rate hike and end to QE. It's just that they bet their money on what is probably the right thing to do but the Fed, Europeans and China are simply not doing the right thing.


Economic Collapse is cyclic in nature every 7-8 years we get this boom bust cycle , irrespect if Schiff and company bets or Fed doesnt it is bound to happen , QE is not specific to fed , The Japanense Central Bank has been doing that there is good reason why Japan has debt of 250 % of its GDP , The Fed since 2008 perhaps even earlier but less amount , ECB has its own printing press started and Chinese are not behind either.

If only we could print out of our economic problem then we wouldnt have a problem at all :)

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Re: Perspectives on the global economic changes

Postby Austin » 29 Aug 2016 18:35

CNBC: Banks are preparing for an ‘economic nuclear winter’
The first half of 2016 has been a roller-coaster for financial markets. A combination of uncertainties surrounding the U.K.'s vote to leave the European Union and weaker-than-expected corporate earnings results across the region means a tough second half looms.

European banks, in particular, have had a very tough six months as the shock and volatility around Brexit sent banking stocks south. Major European banks like Deutsche Bank and Credit Suisse saw their shares in free-fall after the referendum's results were announced. In the U.K., RBS was the worst-hit, with its shares plunging by more than 30 percent since June 24.

The current uncertainty over when the U.K. will start the process of quitting the EU has banks on tenterhooks. But a source told CNBC that banks are "preparing for an economic nuclear winter situation."

Speaking on the condition of anonymity due to the sensitive nature of the topic, a source from a major investment bank told CNBC that financial services firms have put together a strategy in place that takes into account the worst-case scenario that could happen by the end of this year.

"This could mean triggering Article 50, referendum in other European nations leading to a break-up of the euro or sterling hitting below $1.20 or lower. The banks are ready for anything now," the source said.

The source further explained that the challenge in 2016 is nothing compared to when the Lehman Brothers collapsed in 2008 and the banking sector is this time a lot more resilient. "Markets hate uncertainty and the events this year have unfortunately created a lot of mystery around what is going to happen next."

Meanwhile, a common theme across second-quarter results has been a warning of uncertain times ahead. From big investment banks to mining firms like BHP Billiton and Glencore to the auto sector, companies have cited uncertainty and volatility in markets as a reason for weak results and have warned that the second half will be challenging.

Following that, a number of banks have cut their exposure to equities due to the volatile nature of stocks in the first half the year. Earlier this month, Goldman Sachs downgraded stocks to "underweight" as part of its 3-month asset allocation citing global equities to be at the upper end of their "fat and flat range."

"The second half of the year is going to be very challenging for U.K. corporates," Craig Erlam, senior market analyst at OANDA told CNBC via email. "Not only are they contending with possible recession in the U.K. and more prolonged slowdown, the uncertainty factor surrounding Brexit leaves planning for the future a very difficult task."

Erlam further explained that a number of companies won't know for a while what the future of their operations in the U.K. will look like.

"I imagine many are already putting plans in place for moving operations abroad should the U.K. lose access to the single market. With companies less likely to invest and recession very possible, the second half of the year isn't looking great, particularly for those companies with greater exposure to the UK."

But while challenges continue to loom, some analysts have said it was important for companies to get on with their business.

"I think the main problem for the second half of the year is the uncertainty caused by Brexit, though that's likely to persist for two years or more, so I suspect companies are likely to roll up their sleeves and get on with their business," Laith Khalaf, senior analyst at Hargreaves Lansdown told CNBC via email.

Khaif explained that the challenges will remain but it is important for industries like banking for instance to focus on maintaining their solvency ratios and "de-risking and simplifying their businesses."

Follow CNBC International on Twitter and Facebook.

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Re: Perspectives on the global economic changes

Postby Gyan » 29 Aug 2016 20:12

I don't think there will be any major economic collapse on Global Scale. Ground is already being laid for encouraging Govts to go for higher fiscal deficit. QE is print and lend. FIscal deficit would be print and spend.

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Re: Perspectives on the global economic changes

Postby TSJones » 30 Aug 2016 05:01

if you are refering to the US government, it cannot print money in order to spend. it must borrow the money for its spending that exceeds the amount of taxes that it takes in. that amount of borrowing must be authorized by law every year via congressional legislation.

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Re: Perspectives on the global economic changes

Postby Vayutuvan » 30 Aug 2016 05:39

TSJones wrote:if you are refering to the US government, it cannot print money in order to spend. it must borrow the money for its spending that exceeds the amount of taxes that it takes in. that amount of borrowing must be authorized by law every year via congressional legislation.

They - the congress - invariably authorizes year after year. Correct me if I am wrong on that count (not the numbers but the spirit of what I am saying).

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Re: Perspectives on the global economic changes

Postby Vayutuvan » 30 Aug 2016 05:40

Gyan wrote:I don't think there will be any major economic collapse on Global Scale. Ground is already being laid for encouraging Govts to go for higher fiscal deficit. QE is print and lend. FIscal deficit would be print and spend.

Actually it is: Democrats are tax and spend vs. GOP is borrow and spend. No "lend" in there. "Spend" is the least common denominator.

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Re: Perspectives on the global economic changes

Postby chanakyaa » 30 Aug 2016 07:40

it cannot print money in order to spend. it must borrow the money for its spending that exceeds the amount of taxes that it takes in. that amount of borrowing must be authorized by law every year via congressional legislation.


Congress passes first budget in 6 years

Congress can choose to raise Debt ceiling when we reach it, and has 74 times in the last 53 years.

Someone told me this is how the conversations goes in reference to spending and debt limits...

Congressman: I would like to spend $1 billion in my district on new library, technology park, and demolish few buildings to rebuild later.
Congressman aid (Intern): Sir, great idea, but we haven't passed or balanced a budget in many years. How will the spending pass?
Congressman: Intern, you are asking too many questions. You don't know how budgetary process works. Next time the president comes requesting for some war spending, we will sneak this one in.

Eventually $1 billion is spent on useless, GDP growing projects. And the bill finally arrives at the treasury. Treasury has no money so it see no option but to raise the debt. So it approaches our Congressman.

Treasury: Congressman, some idiot spent $1 billion knowing fully well we don't have money
Congressman: How dare you talk to me like that?
Treasury: Sorry Sir, but what do we do. We have reached the authorized debt limit, but this was approved spending, so we must pay.
Congressman: Mr. Treasury, what do you recommend?
Treasury: I recommend that we raise the debt limit so we can pay the real products with electronic money (thank God no one asks for Gold in return these days). This will increase our national debt by another $1 billion. Very sad.
Congressman: I see. I think this president is ruining our economy by mismanaging the finances. But, don't worry we will raise the debt limit. We do it all the time.

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Re: Perspectives on the global economic changes

Postby TSJones » 30 Aug 2016 09:11

but there is no printing of money........that is done by the federal reserve bank of the US which is relatively autonomous. it creates....and destroys money according to its own reasons which may or may not coincide with the US Department of Treasury.

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Re: Perspectives on the global economic changes

Postby hanumadu » 30 Aug 2016 09:30

Austin wrote:
hanumadu wrote:My take is Schiff, Stockman, Faber etc bet their money on another economic collapse and the fed is thwarting it by endless QE and low interest rates. It doesn't mean they are not right in asking for a rate hike and end to QE. It's just that they bet their money on what is probably the right thing to do but the Fed, Europeans and China are simply not doing the right thing.


Economic Collapse is cyclic in nature every 7-8 years we get this boom bust cycle , irrespect if Schiff and company bets or Fed doesnt it is bound to happen , QE is not specific to fed , The Japanense Central Bank has been doing that there is good reason why Japan has debt of 250 % of its GDP , The Fed since 2008 perhaps even earlier but less amount , ECB has its own printing press started and Chinese are not behind either.

If only we could print out of our economic problem then we wouldnt have a problem at all :)


I did say that
the Fed, Europeans and China are simply not doing the right thing.
referring to QE by everybody. Economic cycles may be the norm, but not the collapses that were the tech bubble and the sub prime bubble or the supposed apocalypse that will be next.

If only we could print out of our economic problem then we wouldnt have a problem at all :)

Seeing how prophecies or doom and gloom have failed to come true so far, I am almost close to believing that the central banks across the world have found the magic formula for an ever expanding economy :). I mean how come all the smart people in all those countries agree on the same thing.

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Re: Perspectives on the global economic changes

Postby Austin » 30 Aug 2016 17:06

No EU-US trade deal this year - French president
There will be no deal this year between the EU and the US on the Trans-Atlantic Trade and Investment Partnership (TTIP), French President Francois Hollande has said.

"The negotiations are bogged down, positions have not been respected, it's clearly unbalanced," Hollande said in a speech to French ambassadors.

According to the French president, there will not be any agreement on TTIP “by the end of the year.”

Earlier, Minister of State for Foreign Trade Matthias Fekl told French media that the current TTIP talks should be halted and new ones should begin.

“There is no more political support in France for these negotiations,” and “France calls for an end to these negotiations,” Fekl told RMC radio.

The Americans give nothing or just crumbs… That is not how negotiations are done between allies,” Fekl said. “We need a clear and definitive halt to these negotiations in order to restart on a good foundation.”

France “demands a halt to TAFTA [Transatlantic Free Trade Area] and TTIP [Transatlantic Trade and Investment Partnership],” he tweeted.

Fekl said that France will raise the case at a meeting of EU foreign trade ministers in Bratislava, Slovakia, in September.

German Foreign Minister Frank-Walter Steinmeier added that US and EU still are “far away” and have work to do on the standards of the deal.

In the meantime, a spokesman for US Trade Representative Michael Froman told Der Spiegel newspaper that the talks “are in fact making steady progress.”

Fekl’s remarks come days after German Vice-Chancellor and Economy Minister Sigmar Gabriel said that the TTIP negotiations have essentially failed.

“In my opinion the negotiations with the United States have de facto failed, even though nobody is really admitting it,” the minister told ZDF broadcaster on Sunday. “[They] have failed because we Europeans did not want to subject ourselves to American demands.”


The deal still has backing in some quarters, however, with a number of EU officials speaking out in support of it.

Italian Minister of Economic Development Carlo Calenda believes that the TTIP talks must continue.

“TTIP will be sealed. It is inevitable," he said in an interview with Corriere della Sera newspaper. “We have to carry on. This accord is essential for Italy.”

Washington has been insisting that the free trade deal be signed before the end of 2016, but it has encountered strong opposition from a number of European nations.

The TTIP is a EU-US free trade treaty project that was dubbed as controversial the moment it was proposed three years ago and has been criticized for its secretiveness and lack of accountability ever since.

The proposed deal aims at promoting trade and multilateral economic growth by creating the world’s largest free-trade zone. Backers say it will help small businesses opening up markets and making customs processes easier, while trade tariffs on products would be reduced.

But critics of TTIP fear big corporations will be the only ones to profit from the deal, with corporate interest coming even ahead of national interest.

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Re: Perspectives on the global economic changes

Postby TSJones » 30 Aug 2016 23:42

as usual, the US gets tough with its Euro allies who actually buy US products but lays down with trade deals in Asia.

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Re: Perspectives on the global economic changes

Postby Gyan » 31 Aug 2016 00:47

QE

Fed will print money and lend to big bank Mafia who will further lend it down the pyramid. Hence print and lend.

Fiscal deficit

Fed will print money and lend it to Govt who will spend it on something. Hence print and spend.

Conclusion

Inflation can only be raised by raising fiscal deficits and this is where, this train is going. No collapse just inflation and debasement of currency.

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Re: Perspectives on the global economic changes

Postby Neshant » 01 Sep 2016 06:26




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Re: Perspectives on the global economic changes

Postby KarthikSan » 01 Sep 2016 21:33

TSJones wrote:but there is no printing of money........that is done by the federal reserve bank of the US which is relatively autonomous. it creates....and destroys money according to its own reasons which may or may not coincide with the US Department of Treasury.


But Saar, who is the largest buyer of Treasury debt as and when issued? It doesn't matter whether the Fed prints the money or the Treasury. The game is one and the same.

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Re: Perspectives on the global economic changes

Postby Gyan » 01 Sep 2016 22:26

A query to experts:-

Fiscal deficit is funded by borrowing. But What is the mechanism to decide, how much borrowing will be from market, central banking and how much will be from printing press?

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Re: Perspectives on the global economic changes

Postby panduranghari » 01 Sep 2016 22:39

hanumadu wrote:Seeing how prophecies or doom and gloom have failed to come true so far, I am almost close to believing that the central banks across the world have found the magic formula for an ever expanding economy :). I mean how come all the smart people in all those countries agree on the same thing.



Bill Gross used to manage $270 billion at one time.

Let him speak for all the cassandras.

Bill Gross August Investment Outlook

He questioned its mantra of data-dependence and its refusal to acknowledge the Yellen/Bernanke/Greenspan "put" in financial markets. He questioned their ability to maintain that "put" while at the same time subordinating inflation targeting and output-gap modeling to it. All three cannot be done at once, he claims, and one day a Piper will be paid, "perhaps even the Fed's independence" he cautions, as the public is growing increasingly suspicious of this unelected group of bankers — central as they are.
The primary problem lies with zero/negative interest rates; that not only do they fail to provide an "easing cushion" should recession come knocking at the door, but they destroy capitalism's business models.
Warsh is a mensch. He's not smokin' a Volcker-like cigar I suppose, but he has spoken his mind and risked the calumny of his contemporaries — even those at The Stanford University's Hoover Institute, where he is a visiting Fellow. What he thinks they should do differently was not well delineated though. I and others however, have for several years now, suggested that the primary problem lies with zero/negative interest rates; that not only do they fail to provide an "easing cushion" should recession come knocking at the door, but they destroy capitalism's business models — those dependent on a yield curve spread or an interest rate that permits a legitimate return on saving, as opposed to an incentive for spending. They also keep zombie corporations alive and inhibit Schumpeter's "creative destruction" which many argue is the hallmark of capitalism. Capitalism, almost commonsensically, cannot function well at the zero bound or with a minus sign as a yield. $11 trillion of negative yielding bonds are not assets — they are liabilities. Factor that, Ms. Yellen into your asset price objective. You and your contemporaries have flipped $11 trillion from the left side to the right side of the global balance sheet. In the process, you have deferred long-term pain for the benefit of short-term gain and the hopes that your ancient model renormalizes the economy over the next few years. It likely will not. Japan is the petri dish example for the past 15 years. Other developed market economies since Lehman/2009 are experiencing a similar fungus.
Investors should know that they are treading on thin ice. The problem with Cassandras, such as Gross and Jim Grant and Stanley Druckenmiller, among a host of others, is that we/they can be compared to a broken watch that is right twice a day but wrong for the other 1,438 minutes. But believe me: This watch is ticking because of high global debt and out-of-date monetary/fiscal policies that hurt rather than heal real economies. Sooner rather than later, Yellen's smooth shot from the fairway will find the deep rough.

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Re: Perspectives on the global economic changes

Postby TSJones » 01 Sep 2016 22:59

the federal reserve's open market operations are in charge of buying and selling securities. here is a description there of:

https://www.federalreserve.gov/monetary ... ketops.htm

but they are not the only customers,,,,,,,,,

http://dollarsandsense.org/archives/201 ... euss1.html

When the Fed buys government bonds, does that just mean paper is shuffling back and forth between one part of the government and another?

No, the Fed buys bonds previously sold by the U.S. Treasury to “members of the public” (to some extent to individuals, but mostly to financial firms, in the United States and abroad) and to the central banks of other countries.

When the government needs to borrow, the U.S. Treasury sells bonds. (A bond is basically an IOU, the government’s promise to pay the owner of the bond a certain amount of money at a specific date in the future. In the meantime, the government can spend the money it received in exchange for the bond.) At any time, there are lots and lots (and lots) of bonds owned by people or institutions who have either bought them directly from the Treasury, or bought them from someone else in the “bond market.” Bonds may change hands lots of times after their initial sale by the Treasury. When the Fed wants to lower interest rates, it buys some of these bonds from their owners.


in other words, in order to effect monetary policy .....create and destroy money......the fed reserve has to wait until the general public including national banks and other central banks, spend money to buy the securities from the US treasury then the open market ops steps in and buys from the public (or sells).

otherwise, all the fed would be doing is swapping paper back and forth with the US treasury. You dig?

I have seen the US treasury cancel auctions because there wasn't enough interest in the bonds to get the desired interest rate that they wanted. If the fed reserve was just swapping paper with the US treasury then this would never happen.


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Re: Perspectives on the global economic changes

Postby TSJones » 01 Sep 2016 23:22

and there is no more fed reserve QE. because if there was still QE you would see an increase in assets listed in their financial statement that I previously provided a link for on a previous message.

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Re: Perspectives on the global economic changes

Postby chanakyaa » 02 Sep 2016 07:51

Gyan wrote:Fiscal deficit is funded by borrowing. But What is the mechanism to decide, how much borrowing will be from market, central banking and how much will be from printing press?

Gyanji, in your question, very strictly speaking, i think you are mixing apples and oranges. Government's insatiable appetite to spend more than they take in, is satisfied by Treasury by issuing debt which is generally bought by the banks and/or money management funds who would get that money from individuals and/or corporations. Remember, Fed can also buy the Treasury debt. But for the Federal Reserve, they don't have any savings (or not lot). When their balance sheet went from $873 billion at the end of 2008 to $4.4 trillion as of Aug 2016, all they had to do was to "print money" (in digital terms, increase counter in a computer) by $3.5 trillion. Unfortunately, you and I are not allowed to do it. It is all in the name of western freedom :wink: . Here are the links.

Aug 2016 Balance Sheet

2008 Balance Sheet

Federal Reserve don't need anyone's permission to print money. They go ahead and just do it. Then some drama is played on the TV to give common people a sense of comfort that there are checks and balances are in place. Federal Reserve's money printing is a very profitable enterprise. In the world of electronic currency, Fed's cost of producing $1 trillion is "zero", but they get paid interest rate on assets that they buy with the electronic money. We all should create our own central bank. Unfortunately, it is not legal.

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Re: Perspectives on the global economic changes

Postby Austin » 02 Sep 2016 20:02

One good example why Stock Market over the world are so detached from economy ......Russian economy is in recession and the stock exchange MICEX is all time high

http://www.bloomberg.com/quote/INDEXCF:IND

MICEX index exceeds 2,000 points first time in history

Business & Economy
September 02, 17:09 UTC+3

MOSCOW, September 2. /TASS/. The MICEX index exceeds 2,000 points for the first time in history reaching 2000.49 points on Moscow Exchange on Friday.

RTS Index also showed growth, increasing by 2% to 964 points.

Brent crude oil futures contract for November delivery on London’s ICE also rose by around 2% to $46.37 per barrel.


More:
http://tass.com/economy/897401


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Re: Perspectives on the global economic changes

Postby panduranghari » 04 Sep 2016 14:33

Singapore, Dubai, London all come knocking on India's door to save them when the global economy goes belly up. Thanks SK Mody ji for the link. The deputy PM of Singapore is very erudite.

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Re: Perspectives on the global economic changes

Postby Gyan » 05 Sep 2016 20:16

After reading the posts of the experts, it seems that :-

Fiscal deficit is

Govt borrowing money from the market, banks or the Central Bank by issuing bonds. If borrowings are from market then it will depress liquidity and raise interest rates therefore Fed has to buy bonds by printing money. The budget does not provide how much money will come from market and how much will come from printing (via Fed). Hence basically the amount of money printing for funding budget deficit goes on behind closed doors. Their is legislative oversight on budget but not on money printing which can have huge impact on economy. This situation is common to both India and USA

QE is

Banks borrowing from Fed or selling their financial assets to Fed in closed door meetings. Fed can use its own assets to lend/buy but for all practical purposes it prints money and lends to bnak at zero% and then banks use to money to lend to poor at 20%, or speculate or keep junk assets of super rich on their B/S by evergreening. There is no legislative oversight on this game even though the money printing can be many many times the annual budget of Union Govt.

Conclusion

The Global economy is getting *ucked by QE because in theory it extends low interest rates through trickle down effect. But in reality the Asset prices are kept high due to QE. Simultaneously the middle class is forced into penury due to recession, austerity, low fiscal decficit and unable to buy the high priced assets even with lower interest rates. Hence economy freezes and goes into coma like in Japan for tow decades.

My Solution:-

Raise fiscal deficit to a limited extent and normalize interest rates to lower asset prices. But this will lift the skirts of Banking Mafia which they will not allow to happen,. Hence expect more wars to keep people busy and 20-30 years of stagnation.

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Re: Perspectives on the global economic changes

Postby TSJones » 06 Sep 2016 01:06

Each bank that is a member of the Federal Reserve *must* maintain a minimum reserve requirement of US government bonds set by Federal Reserve headquarters. Depending on monetary policy decided by a committee of Federal Reserve Board of Governors, the reserve requirement may go up or down from time to time. This in effect causes the creation or destruction of US money. This is the economic policy "axe" of the nation.

Then, there is the "scalpel" economic policy. The Federal Reserve maintains a "discount window" where each member bank may go and obtain money on a loan basis. The interest rate is determined again by the committee of Board of Governors or their representatives. the interest rate can go up or down from time to time. This also causes creation or destruction of money too but not as great of effect as a change in the bank's reserve requirement does.

when economic panic grips the nation, no matter what the interest rate is or what the bank's reserve requirements are, NOBODY IS SPENDING ANY MONEY. THEY ARE AFRAID TO DO IT. THEY DON'T WANT ANY ANY BANK LOANS. THERE IS NO DEMAND.

so what can the federal reserve do in order to stop the fear?

the federal reserve open market operations can start buying government bonds (and government backed mortgage securities) from the general public by the train load, ship load, camel load, what ever.

This gushes massive amounts of money into the general economy.

Bernanke did this and called it "QE" forever coining a meme in the public's mind. He saved the US economy from a disaster of enormous proportions.

And what did the public economy do with all this cash? With the help of China they bid up the price of commodities especially oil beyond any foreseeable demand requirement. Thy also put it in the stock market.

We all know what happened to the price of oil but we will have to wait and see what will happen to the stock market.

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Re: Perspectives on the global economic changes

Postby Gyan » 06 Sep 2016 01:18

I agree that Fed MUST intervene in short term to prevent any market PANIC induced collapse but Fed should not take over long term economic policy. If stimulus is to delivered then fiscal deficit should be used with approval of legislature.

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Re: Perspectives on the global economic changes

Postby TSJones » 06 Sep 2016 07:11

keep in mind that a lot of government spending are called "government transfer payments".

government transfer payments comprises welfare, pensions, and business subsidies. there are no exchange of goods and services, you are merely allocating money to a different segment of the economy. thus, under classical economic theory THERE IS NO STIMULUS TO THE ECONOMY from government transfer payments.. Net zero. therefore, the demand and supply aspects of the economy do not change,

there is an exception........if the deficit spending is dedicated to building infrastructure, technology development, etc., then the demand and supply aspects of the economy are then affected. but it takes a longer lead time to create the desired effect,

the federal reserve open market operations QE (hopefully) has a much shorter lead time by directly injecting cash into the economy and then getting out of the way of the invisible hand without further fiscal debt by the government.

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Re: Perspectives on the global economic changes

Postby Neshant » 08 Sep 2016 06:57

An astonishing number of idiotic theories keep being churned out by so called economists.



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Re: Perspectives on the global economic changes

Postby panduranghari » 08 Sep 2016 11:33

Gyan wrote:I agree that Fed MUST intervene in short term to prevent any market PANIC induced collapse but Fed should not take over long term economic policy.


You sure about that?

Forty-five years and counting: We’ve been on a debt spree since the early 1970s when we went off the gold standard, covering every possible angle. Trade deficits, government deficits, unfunded entitlements, private debt – you name it! Our total debt has grown 2.5-times GDP since 1971.

How could economists not see this as a problem? How is this the least bit sustainable?

It isn’t. We’re hurtling toward a massive financial crisis, and all we have to show for it are financial asset bubbles destined to burst. And when they do, they’ll wipe out the artificial wealth they’ve created for many decades… in just a few years, as they did from late 1929 into late 1932!

The chart below shows the common-sense truth.

As with any drug – and debt is a financially enhancing drug – it takes more and more to create less and less of an effect. Eventually, you reach the “zero point” where there is no effect and the drug kills you from its very strain and toxicity.

We’re rapidly approaching that zero point, after every dollar of debt has produced less and less GDP steadily since 1966:
Image

Note that the anomaly in the chart after 2008 was due to the impact of unprecedented QE. Ever since that disruption, the trends have pointed back down – making a beeline toward that zero point again.

Back in 2002, Swiss investor and market prognosticator Marc Faber published a similar chart. His findings showed the zero point for debt creation would occur around 2015. With updated data, we now see that the zero point will hit around the beginning of 2017.

In other words – right about NOW!

This is why central banks around the world have failed to spurn inflation despite endless money-printing. The more money they print, the less effect it has.

Just ask Japan. They’ve been doing this since 1997 with zero GDP growth and zero inflation, on average. Lately it seems like any time they get out of a recession they’re thrown right back into one!

But there is another ramification to all this money-printing…

When central banks create money out of thin air – through the fractional reserve banking system and through QE – it has to go somewhere.

When the economy is so indebted that consumers and companies can’t take on any new debts, the money can’t go there. So, it winds up going into financial speculation, especially as investment firms can lever up at little cost due to zero or negative interest rates. Stock prices bubble instead of inflation as the economy keeps sucking wind!

Sure enough, this next chart shows that debt and equity prices go hand-in-hand:

Image


In the 20 years between 1995 and 2015, debt grew at a rate of 4.2-times GDP, and stock prices followed at 4.3-times. Total U.S. sector debt now stands at 348% of GDP, with stocks at 214%.

All told, these two combined are 588% of GDP, far more than any time in history.

Is this a bubble burst waiting to happen? Count on 2017 marking the beginning of the greatest crash we’ve seen since 1929-1932. And I have a new book coming out to commemorate this occasion, The Sale of a Lifetime, which will hit shelves on September 15. It examines financial bubbles, and I couldn’t have picked a better time to release it, at the height of the greatest bubble in modern history.

We’re simply running out of time. With debt into the hundreds of trillions, rapidly growing debt-to-GDP ratios, and plummeting stocks for major banks all around the globe, it’s only a matter of time before the sky comes falling and investors get flattened! It’s no longer a question of “If,” but “When.”





http://wolfstreet.com/2016/09/01/weve-r ... ment-52281

Neshant
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Re: Perspectives on the global economic changes

Postby Neshant » 08 Sep 2016 11:57

I can't see interest rates going up to the 5% range or so as it would take so much more to service the debt interest. And long term US bonds is definitely a looser if held to maturation, maybe a 50% loss over 30 years? Seems the Federal Reserve is bankrupting the pensions on purpose. Are 401ks next?

Austin
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Re: Perspectives on the global economic changes

Postby Austin » 08 Sep 2016 12:28

Peter Schiff about the American ECONOMY and where it's GOING in the FUTURE


Gyan
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Re: Perspectives on the global economic changes

Postby Gyan » 08 Sep 2016 16:58

Long term QE will always be a failure because it freezes economic development by driving up asset prices. The benefit of low interest rates is less than the hike in, say, home prices, which sub dues economic activity. Add the fact that China has access to 1.5 Billion slave labour, western world is going to see decimation of its middle class in next two decades. But no, there will not be any crash. Just infinite stagnation.

Austin
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Re: Perspectives on the global economic changes

Postby Austin » 08 Sep 2016 17:43


Austin
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Re: Perspectives on the global economic changes

Postby Austin » 10 Sep 2016 09:13

In this episode of the Keiser Report, Max and Stacy discuss the new m-SDR and ask will the dollar live to die another day? And are SDRs forever? As the G20 in China concludes they ask whether the new Special Drawing Right is the first step toward one world currency.

In the second half, Max interviews Dan Collins of ChinaMoneyReport.com about yuan internationalization and China’s quantum satellite.



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