Showing posts with label recession. Show all posts
Showing posts with label recession. Show all posts

Monday, March 16, 2020

The Fed's 1% Interest Rate Cut Doesn't Address The Shutdown So Will Not Avert The COVID-19 Recession

Image may contain: text
Image result for brane space, stocks

"The Federal Reserve is now officially spent.  Saving the U.S. economy from this point forward is now up to others.".  Greg Ip, WSJ, 'Don't Look To The Fed. It's Others' Turn Now'.

It's always sad in a movie when the 'good guy' is pinned against the wall with only one round left in the chamber of his six gun, and the bad guy approaches - say with a bigger weapon.  Then when you see the good guy fire the round to no effect, you know it's all over but the dirges.  The same transpired yesterday when Fed Chair Jerome Powell - desperate to halt the sordid economic effects of unseen enemy - fired off the last round in his chamber. I am talking about the rate cut of effectively 1 percent (down to 0- 0.25%) which will leave nothing in his chamber when the full COVID-19 recession takes off.

As I'd written before, none of these monetary moves work given the nation is in a shutdown - with millions of workers soon forced to stay home either out of choice or necessity (if they get the virus or their kids do).  What they need and badly - is money to tide them over when they can't collect a paycheck. In other words, paid leave. (See my post from yesterday).

Will Powell's rate cut get commercial aviation, now facing a $113 b hole (WSJ, March 14, p. B4) earning again?  Will it fix the supply chain problems all around, including meds from China?  Will it bolster the energy sector- now facing a demand drop from the virus as well as oversupply problems? Hell no, which is why you can expect the markets to tank today. They know the only thing the Fed and Powell have done is to appease Trump. (The dope actually expected the DOW to soar today.)

Most ordinary, e.g. non - financially inclined citizens, still have no clue regarding the economic cyclone about to strike the U.S.   This is the case because they've no inkling of the knock -on effects of prolonged shutdowns or terminated supply chains.  This is apart from the residual core of congenital morons who insist it's "all media hype"  and - to quote one asswit :"If we can't deal with a little bug then we're all a bunch of pansies.".  In regard to either of these denizens I want to hear what either says - assuming they can communicate at all- once they get this "bug" and have to be intubated in an ICU at the nearest hospital.   

The commonality with all these low IQ mutts who try to spread the memes that "it's just a flu" or "no biggie" is: i) They are incapable of doing exponential math, and ii) they have no conception of the limited margin for error we have in terms of our health care system capacity: ICUs, beds, ventilators, medical staff,  i.e. being inundated by a flood of critical care patients when existing resources are at a premium.

Many of these dimwits look at current fatality stats, say 60-odd in the U.S. and are unimpressed, not realizing there are literally thousands backing up in ICUs across the U.S. right now fighting for their lives on ventilators - with loved ones hoping they aren't added to the death toll. You never hear about these cases unless you plow through different newspapers of different cities, say like New Orleans. Where you learn about the current plight of 45 -year old  construction litigator Mark Frilot, now in critical care, and isolated and sedated (using paralytic drugs) on a ventilator.  His wife Heaven said their physician informed them that COVID-19 was likely circulating for a while before Mark got it, and also before the testing kits arrived. That means hundreds may have been spreading it and displayed no symptoms themselves.

The distaff side is that in rural (say red state) areas, we behold a proud populace who fancy themselves above the fray.  As reported in yesterday's Colorado Springs Gazette, many - like in Baca County, or Montrose - see the social distancing measures in cities as "over reaction."  They themselves have no idea how close to perdition they are if the virus hits their little burgs, many with only 1,700- 2,500 people.  But consider this: most of their little community hospitals have only 5 ventilators (ibid.) If the virus strikes a town of 2,000 and 1,000 cases erupt with 200 critical (respiratory failure like with Mark Frilot) they will have 195 citizens who will have to be triaged, or die.  Like the 'no biggie' dimwits they have no clue but for a different reason.

Thank Bonespurs and his spurious maladministration for their colossal failure in implementing the critical testing. (See again Frilot's case described above)

Now, for some hard economic facts for those with IQs over 100:

Mark Zandi of Moody'a Analytics has already projected a $120 b loss by the end of March and has the U.S. effectively in recession now. JPMorgan Chase said Thursday that it expected the U.S. economy to contract in the first two quarters of the year, which would meet a standard definition of a recession. A survey of prominent academic economists, also released Thursday, found that a majority thought the outbreak was likely to cause a “major recession.”  

Coronavirus will cause a recession deeper and more severe than the Great Recession,” Noah Smith, a Bloomberg Opinion economics writer, also predicted.

This will be the case, btw, no matter what manipulations Jerome Powell and the Fed pull with the interest rates (cutting them down to effectively zero yesterday).  None of it will work because what is required now is not any monetary fix but a massive injection of at least a trillion bucks.  This would most expeditiously done via  gov't checks of $1,000 each sent out directly to families hunkered down, like Gee Dubya Bush did back in 2008-09.  (As WSJ columnist Greg Ip related to the CBS a.m. anchors last week)

 In addition we need lots of federal money to support subsidies for hundreds of small businesses to enable them to give paid leave to their sick or secluded employees, without going into the red.  All of which will do far more to keep the economy afloat - and at least avoid the worst potential recession- than the Fed's interest rate gimmicks. 

All of this is needed to support a credible Coronavirus response package - as opposed to that piece of  compromised crap I wrote about yesterday. Or more Fed interest rate cuts (including toward negative interest rates) which don't do a damned thing otherwise than provide cheap crack to the markets.  Which can't avoid crashing anyway if the demand side is basically frozen up, consumers not spending to go out etc.

Measures of consumer sentiment fell sharply in early March, and indexes of business conditions have since cratered. Airlines, ports, hotels and other directly affected industries have already announced layoffs or employee furloughs. In Barbados, docked cruise ships have disgorged passengers mid-voyage who must now try to find air transport back to their homes.  All those cruise companies are now shut down and they didn't even give passengers a heads up. (See, e.g., 'Cruise Business Comes To A Halt', WSJ,  March 14-15, p. B3)


Postings for restaurant jobs were down 26 percent last week compared with the same week a year ago, according to data from the job marketplace ZipRecruiter. Job listings in catering were down 39 percent and those in aviation down 44 percent.

 As energy specialist and pundit Dan Dickers has noted,  lot of this has to do with the U.S. shale oil business being over-leveraged for the past five years at least. Thus, "tons of debt" (Dickers' parlance) has been issued with some $600 b "in triple B bonds or B minus bonds".    Given this, it's little wonder U.S. shale drillers can't beg, borrow or steal any credit now - say from the banks - to support their activities. (See e.g. 'Shale Drillers Face Fight For Survival As PricePlummet', WSJ, today, p. B1).  Indeed Scott Sheffield (Pioneer Natural Resources CEO) estimates (ibid.):  "50 percent of public E&Ps will go bankrupt over the next two years."

Dickers estimated as much as $2 trillion could be out there with U.S. banks holding a lot of it (one reason the bank stocks were "murdered" in the bloodbath yesterday).   All of which points to mammoth liquidity problems in many ways analogous to what presaged the credit crisis 10 years ago.   Worse, "the Fed is now out of quivers".  

Trump has been able to hold up his fake economy - and overextend the life of the Bull (which Dickers insists is 3 years beyond terminal) -  by gimmicks such as tax cuts, deregulation and bullying Jerome Powell's Fed to cut interest rates- as they did again yesterday. But this is  about to end because of the COVID-19 pandemic upends markets everywhere, from sports, to energy, to  entertainment (theaters), restaurant industry, airline industry and banking. As Dickers put it to Hayes:

"The coronavirus will be the straw that broke the camel's back of the global economy."

As Niall Ferguson pointed out in his WSJ op-ed  ('Network Effects Multiply A Viral Threat', March 8, .A17):

"Network effects are the reason it is anything but dumb to worry about this novel coronavirus.  Not only is it spreading much faster than most Americans realize, it is also disrupting global manufacturing supply chains as well as all the economic activities that depend on travel and proximity."

The even more somber specter hanging over the markets is the degree of  ordinary leverage, beyond the already referenced over-leveraged oil markets.  This is the degree to which disproportionate debt underlies the purchase of ordinary stocks, shares. One pundit on CNBCs  'Squawk Box' the day of the 9.9% crash observed that currently for every $1-2  an investor uses to purchase a share -  say for $10  - the balance is appropriated via leverage or going into hock.  Hence, a paper $6 trillion loss in a major sellout could actually turn out to be $50 trillion. 

This warning is not new. Two years ago, we read in the April 17, 2018 Financial Times ('IMF Sounds Alarm On Excessive Global Borrowing') :

"The world's $164 trillion debt pile is bigger than at the height of the financial crisis a decade ago, the IMF has warned, sounding the alarm on excessive global borrowing.  The fund said the private and public sectors urgently need to cut debt levels to improve the resilience of the global economy, and provide greater firefighting ability it things go wrong."


True, in much of the nation the economic hurricane remains invisible, as offices, restaurants, bars remain open - and for now day to day life appears relatively normal.   But in places like Seattle where the virus is now widespread we behold the worst effects as mitigation proceeds to try to flatten the infection curve.  There the downturn is well underway and it will get worse and hit the rest of the nation as testing ramps up and the infected numbers double, triple and quadruple.  For those blinded by stupidity or inability to do exponential math this will be "hype" -until they and theirs also get ill-- from reckless behavior owing to indulging in too much FOX watching.  What we know now, as one economist put it, is that shutdowns and recessions are the way to stop the spread of a virus for which there is no immunity.   As Dr. Anthony Fauci put it, we have a narrow window to act  - especially given Trump blowing the lead time we did have - and if we blow it again now with mitigation (social distancing) then the medical system will be overrun.  We will see a replay of what's happened in Italy but with far more catastrophic consequences.

The workers who are feeling the effects of the pullback first are the ones least able to afford it: low-wage, hourly employees, many of whom aren’t paid if they miss work. Only one-third of leisure and hospitality workers have access to any paid time off, according to data from the Bureau of Labor Statistics.  

Meanwhile, Dotard Donnie Bonespurs clearly feels proud of himself after he managed to bully lapdog Fed Chair Powell into lowering interest rates a full point. He did this by a day earlier speculating that he'd be able to "demote" him.  Btw, do I believe he really tested negative for the belated COVID-19 test he finally took? Hell no! I believe he tested positive and ordered his lapdog doctor to cover for him.  After some 17,000 lies why believe anything Trump or his circle of sycophants claims, or says?  I don't.










See also:

And:

And:

Monday, June 10, 2019

Powell's Fed Has NO Business Propping Up Trump Or The Markets - With Interest Rate Cuts

Image result for brane space, Trump tariff images
"Cripes, I don't know how to control this stupid asshole! I guess I'll just give in."


Barely 4 days ago, I was unable to believe my eyes as I read:

Web resultThis was not a headline designed to inspire confidence among ordinary citizens - especially dedicated savers  not prepared to gamble their money in Maul Street's casinos.  Thus, we were not encouraged on reading (ibid.)Barel"A month ago, Fed Chairman Jerome Powell played down speculation of a rate cut this summer. Now officials at the central bank face a darker economic outlook and heightened trade tensions, making a rate cut possible—if not at their meeting on June 18-19, then in July or later."

"A month ago, Fed Chairman Jerome Powell played down speculation of a rate cut this summer. Now officials at the central bank face a darker economic outlook and heightened trade tensions, making a rate cut possible—if not at their meeting on June 18-19, then in July or later."

This was appalling news especially for dedicated savers. Worse, it portends an ill financial wind for all Americans if it helps to accelerate the economy toward recession rather than improve it. That happens as the Fed seeks to stimulate an economy already over leveraged (deeply in debt) and with employment near full capacity.   But the word is that Powell and others on the Fed Board are "puzzled as to why inflation hasn't risen more".  (Rising inflation would signal a need to raise interest rates.)  Well, there are two reasons: 1)Wages remain stagnant so the usual inflation driver of higher wages in flush times isn't there, and 2) The Fed continues to use an inflation index that's out of date, not factoring in food price increases or medical inflation, especially for meds.

 Barely two weeks earlier, one read ('Investors Expect Rates Cuts By Year's End Despite Data', WSJ, May 16, p. B 10):

"Federal funds futures suggest investors are more convinced than ever that the Federal Reserve will lower interest rates multiple times by the end of the year. Economic data suggest that is too drastic a bet."

Adding:

"Fed future data show the market pricing in a 26 percent chance of the Fed lowering rates twice by the end of 2019 and a 7.5 percent chance of the Fed doing it three times. That is up from 6.7%  and 0.3 % a month ago.

The numbers seems to stand at odds with economic data which overall have shown a strong labor market, inflation expectations that are tame, and modest profit growth well into the economic expansion.  After all, the last time the Fed cut rates was in 2008 - when policy makers were in the midst of grappling with the worst financial crisis since the Great Depression and financial markets were tumbling..

And more recently (June 10) our memories were refreshed (WSJ, 'Business and Finance', p. B8):  

"Then there was the Fed rate cut in September, 2007, which gave the DOW Jones Industrial Average its biggest one day percentage gain since 2003.  Fast forward one year and the U.S. was in the teeth of the financial crisis."


All of which shows me the Fed may be tempted to hit the 'chicken switch' before it's necessary and trigger what it's trying to avoid. Indeed, digging an unnecessary rate hole that may well be needed  (i.e. to really lower rates) if and when a recession does hit - as something like 70 percent of economists are forecasting now - by next year. 

Indeed, signs we're hurtling toward recession were amplified in the more recent article  ('Sluggish Jobs Data Push Treasury Yields Toward 2 Percent', WSJ,  June 8, p. A2) which ominously reported:

"Worries span the globe. The yield on 10 year German government debt Friday declined to record lows below negative  0.2 %.  Japanese government bonds of the same maturity traded below negative 0.1 %.  About $11 trillion of bonds around the world, concentrated in Europe and Japan, carry negative yields now accounting for about 20 percent of all debt world -wide according of Torsten Slok - chief economist at Deutsche Bank Securities."

This debt bogeyman is for real and people would do well not to minimize it.  Indeed, as far back as two years ago The Financial Times reported on the IMF's growing concern about exploding global debt (April 17, ('IMF Sounds Alarm On Excessive Global Borrowing') :

"The world's $164 trillion debt pile is bigger than at the height of the financial crisis a decade ago, the IMF has warned, sounding the alarm on excessive global borrowing.  The fund said the private and public sectors urgently need to cut debt levels to improve the resilience of the global economy, and provide greater firefighting ability it things go wrong.

Fiscal stimulus to support demand  is no longer the priority the IMF said Wednesday in a report published at its spring meetings in Washington. "


But instead of heeding that warning, the Fed appears hell bent on ignoring it to placate and feed investors' addictions to the already senescent BULL market while appeasing Trump.  This is the swine who's berated the Fed incessantly about lowering rates,  going so far as  to try to tilt the Federal Reserve Board with two unqualified lackeys: Herman Cain and Stephen Moore.  Fortunately, after much media heat centered on their woeful and clown -like backgrounds both backed out. But Dotard never let up on his Fed attacks, and in previous posts I worried about Fed Chairman Jerome Powell bending to the fake Fuhrer's will.  

We also are well aware here - as Trump likely is - the only way we may see the end of this orange fungal infection is if the economy crashes. It's now on the verge of doing that (via a potential recession) but any Fed intervention will try to interfere to halt that.  Will the Fed deliberately be trying to help Trump stay in office? Not likely, because there's no way in hell Powell is eager to take 4 more years of Trump's temper tantrums than the rest of us. No, he'd likely want to try to avert a recession - with the best of intentions - except that "the road to hell is paved with good intentions."

However,  the very act of the Fed interjecting with  lower rates may well preordain two hellish consequences: 1) a Trump re-election,  and 2) Ultimately a much worse recession especially if a re-elected Trump  returns to his tariff terrorism - which has already wrought untold havoc. (See e.g. today's lead WSJ Editorial, 'Paying for  Mexico's Wall', noting: "Trump's use of tariffs as a bludgeon on migrants has economic costs. The threat of 25 % tariffs on Mexican exports is gone for now, but businesses can't be sure it won't come back."  )

Never mind the last minute phony end to the Mexican tariffs.  Which we now know Mexico had agreed to months ago, so Dotard manufactured this latest tariff crisis on his own. As usual,  employing chaos and threats to advance his feral agenda, while keeping businesses and American consumers off balance.  Former Obama CIA official Ned Price has this scum pegged perfectly, noting in a recent (June 9)  NY Times piece:

 "He manufactures a crisis, galvanizes his base around the challenge, leaves the definition of success undefined, pretends to play hardball and, lo and behold, finds a solution that entails little more than window-dressing, if that. For Trump, it’s a win-win. But the loser tends to be the American people, oftentimes Trump’s base first and foremost,” 

Why doesn't Trump's base see they are his tackling dummies, used for sport whenever he feels the urge?  Well, because they believe they are "in on the secret" and hence accept whatever drubbing he delivers so long as they might get to see the 'snowflakes'  cry.   Call it schadenfreude but with a nasty blowback.

As for the stock market, Powell wouldn't be doing it or investors any favors by jazzing it up with a rate cut. While it will temporarily boost share prices, it will he at the expense of a mammoth asset bubble. Also, an asset bubble leveraged into being by massive debt, creating an even more unstable financial system.

To fix ideas, let's note here that "support demand" (see FT  quote) refers to support of  "aggregate demand", i.e. getting citizens to spend more - which was the basis for the Trump-GOP tax cuts. This was an incredibly bad play given how much the tax cuts have already added to the debt, and the deficits going forward.

Economist and former Clinton Treasury Secretary Robert Reich warned on 'All In' Friday:

"With all the ancillary damage from these tariffs, and threatened tariffs (against Mexico) you could find the economy in recession before the election."

Chris Hayes then asked if the threats are large enough to knock us from an expansion into a recession, i.e. what's the case if it could.  To which Reich responded:

"Well, it's the interaction between the tariffs and the slowdown that's almost inevitable given how long this recovery has gone.  I mean recoveries don't go forever, they eventually slow down. Also American companies and American individuals are deep in debt, which is another thing that's not talked about very much.

But that debt is also a problem. Then, you have that tax cut for big corporations and for the very wealthy that did not trickle down. it just added two trillion dollars over the next ten years to our debt.

Now put all of that together and you get an economy that is very, very vulnerable."


Reinforcing this take, as The Denver Post noted (June 9. p. A):

"Recessions typically result when the Federal Reserve tightens monetary policy to cool an overheating economy. ..The past two recessions came on the heels of financial excesses, a massive stock market bubble in the early 2000s and an unprecedented housing bubble that triggered the financial crisis in 2008."

Yet now Jerome Powell's Fed seems intent on producing an even bigger bubble, by juicing stocks using interest rate cuts.  Has he been intimidated by Trump into choosing this unwise route? We don't know but the signs are not good. Following the track of the last eight months - and Trump's numerous eruptions - it really does look like Powell has caved. Both to greedy Maul Street investors pressing for more cheap money crack,  and to Dotard.

The questions then become: a) Is it better to cut rates now and in so doing create an asset and debt bubble with even worse effects later, or b)  allow financial destiny to unfold as it will, which may mean a recession - but it will effectively help get rid of the disease called Trump.  I vote for the latter out of plain common sense.

I mean, as NY Times columnist Michelle Goldberg put it on the same 'All In' show, how much more can we take?  Millions of citizens are already tuning out, and despairing that nothing can remove the national disease emanating from the White House.  This is especially after Trump's despicable and dishonorable performance for the D-Day commemoration on Thursday (insulting a real warrior, former Marine Robert Mueller, as well as disparaging Nancy Pelosi - in the shadow of the grave markers at Normandy. This from a coward who used 'bone spurs' to escape from the draft at least 5 times.)

And then we learned in the aftermath that this preening orange, 2-legged maggot wants to insinuate himself into the Independence Day celebrations!  Where does it end? Has Dotard not yet learned Presidents are to be seen and only occasionally heard - generally in their State of the Union spiels?  Four more years of this fuck-turd! Give me a recession anytime!  We need a total disinfection and fumigation of the country. 

So no,  Fed chairman Powell, no rate cuts! Stay your hand and allow the course of history to do what it will. If it means Trump's lone re-election benefit has evaporated, so be it. If it means investors are crying in their beer, we can live with that.  


See also:
P.M. Carpenter's picture
Article Tools E-mail | Print Comments (0)


And: