Saturday, April 13, 2013

Event Horizon

The Fed has taken on Trillions of assets on their balance sheets to enable banks to speculate in the stock market and to spark the animal spirits and the cascade of capital gain taxes our government needs to return to the glory of a balanced budget at some point in the future.  But other than the stock market, the Fed is failing miserably.  Jobs are falling, economic activity is waning, confidence is dropping, and prices are falling. Yes, falling.  For Keynes, fiat, and debt based economy deflation is a curse to avoid at all costs(deflation good for poor people with no assets, and bad for rich people with assets), and deflation is occurring because debt is being destroyed faster than it is being conjured into existence, and velocity decelerating.

The only solution the FED desires to use, is to create more debt at lower interest costs and hope velocity gets them out of trouble and then retire that debt in the future.  But it is obvious to everyone that it is not working, as prices on most commodities have been falling since QE4 has started.  Why?

Because they are first serving their two masters, the banks, which need cash desperately that they can leverage to earn an interest or cap gains which exceed their run down on bad assets on their books, and secondly to ignite a housing bubble to relieve them of unmarked but unproductive loans, and get them over to us, through Freddie and Fannie.  Their other master is the Government.  They are engaged as the buyer of only resort for our debt, used to create a demand fueled economic recovery.

But the banks are not lending, and are only interested in speculating in the stock market, and buying government debt and investing at a 8-10 to one leverage to earn revenue.  But this strategy has reached a zenith, as JPMorgan, the gold standard of banks is slowly drifting into a profit growth less environment (in fact without accounting tricks, already has) as seen by their latest earnings report.  Without lending, which the banks will not do, for fear of loss, you cannot grow a debt based society.

The government, instead of sparking confidence in the future, is scaring the heck out of businesses with higher taxes, regulations, attitude, debt enslaving our children with student loans, and increasing transfer payment scheme of entitlements which does nothing for the growth in the future.

So what we have is an economy that is slipping into the deflation black hole event horizon, and ironically Japans attempt at QE banzai is hurting us and our exports, at the same time Germany's austerity experiment in Europe is reducing worldwide credit growth and export markets.  What's a Central Banker to do?

Check out these charts, does this look like recovery to you?

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