The Great Recession 10 Years Later: Lessons We Still Have To Learn

Ten years ago this month, a recession began in the U. S. that would metastasize into a full-fledged financial crisis. A decade is plenty of time to reflect on what we have learned, what we have fixed, and what remains to be done. High on the agenda should be the utter unpreparedness for what came along.
The memoirs of key decision-makers convey sincere intentions and in some cases, very adroit maneuvering. But common to them all are apologies that today strike one as rather lame.
‘I was surprised by the sudden crisis,’ wrote George W. Bush, ‘My focus had been kitchen-table economic issues like jobs and inflation. I assumed any major credit troubles would have been flagged by the regulators or rating agencies. … We were blindsided by a financial crisis that had been more than a decade in the making.’
Ben Bernanke, chairman of the Fed wrote, ‘Clearly, many of us at the Fed, including me, underestimated the extent of the housing bubble and the risks it posed.’ He cited psychological factors rather than low interest rates, a ‘tidal wave of foreign money,’ and complacency among decision-makers.

This post was published at Zero Hedge on Dec 27, 2017.

The Rich Got Richer In 2017… One Trillion Dollars Richer

2017 has been a banner year for the world’s richest individuals.
Pumped by a tidal wave of central-bank driven liquidity and corporate buybacks, equity indexes around the world climbed to all-time highs this year – a phenomenon that has disproportionately benefited the world’s wealthiest, particularly the 500 individuals included in Bloomberg’s billionaires index.
By the end of trading Tuesday, Dec. 26, the 500 billionaires controlled an aggregate $5.3 trillion, a $1.1 trillion increase from their holdings on Dec. 27 2016.
Unsurprisingly, the biggest beneficiary of this Federal Reserve inspired rally was Amazon.com Inc. founder Jeff Bezos, who added a staggering $34.2 billion to his net worth in 2017 as Amazon shares soared above $1,000.

This post was published at Zero Hedge on Dec 27, 2017.

The Fed Plays the Economy Like an Accordion

We talk a lot about how central banks serve as the primary force driving the business cycle. When a recession hits, central banks like the Federal Reserve drive interest rates down and launch quantitative easing to stimulate the economy. Once the recovery takes hold, the Fed tightens its monetary policy, raising interest rates and ending QE. When the recovery appears to be in full swing, the central bank shrinks its balance sheet. This sparks the next recession and the cycle repeats itself.
This is a layman’s explanation of the business cycle. But how do the maneuverings of central banks actually impact the economy? How does this work?
The Yield Curve Accordion Theory is one way to visually grasp exactly what the Fed and other central banks are doing. Westminster College assistant professor of economics Hal W. Snarr explained this theory in a recent Mises Wire article.
The yield curve (a plot of interest rates versus the maturities of securities of equal credit quality) is a handy economic and investment tool. It generally slopes upward because investors expect higher returns when their money is tied up for long periods. When the economy is growing robustly, it tends to steepen as more firms break ground on long-term investment projects. For example, firms may decide to build new factories when the economy is rosy. Since these projects take years to complete, firms issue long-term bonds to finance the construction. This increases the supply of long-term bonds along downward-sloping demand, which pushes long-term bond prices down and yields up. The black dots along the black line in the figure below gives the 2004 yield curve. It slopes upward because a robust recovery was underway.

This post was published at Schiffgold on DECEMBER 27, 2017.

Demand Tumbles For 5Y Treasuries As Tailing Auction Leads To Highest Yield Since 2011

After yesterday’s ugly, tailing 2-Year auction, it is probably not a big surprise that today’s sale of $34 billion in 5Y Treasurys was just as ugly.
The auction printed at a high yield of 2.245% – the highest since March 2011 – and well above last month’s 2.066% largely thank to the recent Fed rate hike. More troubling is that the auction tailed the When Issued 2.228% by a whopping 1.7bps, the biggest tail going back at least 2 years.

This post was published at Zero Hedge on Dec 27, 2017.

The Dark Power Behind the Financial Asset Bubbles – Whose Fool Are You?

“While everyone enjoys an economic party the long-term costs of a bubble to the economy and society are potentially great. They include a reduction in the long-term saving rate, a seemingly random distribution of wealth, and the diversion of financial human capital into the acquisition of wealth.
As in the United States in the late 1920s and Japan in the late 1980s, the case for a central bank ultimately to burst that bubble becomes overwhelming. I think it is far better that we do so while the bubble still resembles surface froth and before the bubble carries the economy to stratospheric heights. Whenever we do it, it is going to be painful, however.’
Larry Lindsey, Federal Reserve Governor, September 24, 1996 FOMC Minutes
‘I recognise that there is a stock market bubble problem at this point, and I agree with Governor Lindsey that this is a problem that we should keep an eye on…. We do have the possibility of raising major concerns by increasing margin requirements. I guarantee that if you want to get rid of the bubble, whatever it is, that will do it.’
Alan Greenspan, September 24, 1996 FOMC Minutes
“Where a bubble becomes so large as to pose a threat the entire economic system, the central bank may appropriately decide to use monetary policy to counteract a bubble, notwithstanding the effects that monetary tightening might have elsewhere in the economy.
But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade? And how do we factor that assessment into monetary policy? We as central bankers need not be concerned if a collapsing financi

This post was published at Jesses Crossroads Cafe on 27 DECEMBER 2017.

$1.5 Trillion GOP Tax Bill Signed By Trump – Housing Largely Uneffected Thanks To Lower Marginal Tax Rates (Ham and Mayonnaise!)

This is a syndicated repost courtesy of Snake Hole Lounge. To view original, click here. Reposted with permission.
President Trump on Friday signed the Republican $1.5 trillion tax overhaul that is expected to trigger tax cuts for most Americans next year. The GOP/Trump bill undoes some of the damage caused by the tax increases put in place on January 1, 2015 by the Obamacare legislation such as increasing the top bracket from 35% to 39.6%.
Although this is not related to housing per se, the corporate tax rate has been cut to 21%, putting the US in the middle of the G-7 nations instead of being the most heavily tax major nation on earth.

This post was published at Wall Street Examiner on December 26, 2017.

It’s Official: Government Report Says Market Risks are ‘High and Rising’

During Fed Chair Janet Yellen’s press conference on December 13, she had this to say about financial stability on Wall Street: ‘And I think when we look at other indicators of financial stability risks, there’s nothing flashing red there or possibly even orange. We have a much more resilient, stronger banking system, and we’re not seeing some worrisome buildup in leverage or credit growth at excessive levels.’
Where does Fed Chair Janet Yellen get her information on financial stability risks to the U. S. financial system? A key source for that information is the Office of Financial Research (OFR), a Federal agency created under the Dodd-Frank financial reform legislation of 2010 to keep key government regulators like the Federal Reserve informed on mounting risks.
On December 5, the OFR released its Annual Report for 2017. It was not nearly as sanguine as Yellen. In fact, it flatly contradicted some of her assertions. The report noted that numerous areas were, literally, flashing red and orange (OFR uses a color-coded warning system) – raising the question as to why Yellen would attempt to downplay those risks to the American people.

This post was published at Wall Street On Parade on December 27, 2017.

From ‘Definitely Transitory’ to ‘Imperfect Understanding’ In One Press Conference

This is a syndicated repost courtesy of Alhambra Investments. To view original, click here. Reposted with permission.
When Janet Yellen spoke at her regular press conference following the FOMC decision in September 2017 to begin reducing the Fed’s balance sheet, the Chairman was forced to acknowledge that while the unemployment rate was well below what the central bank’s models view as inflationary it hadn’t yet shown up in the PCE Deflator. Of course, this was nothing new since policymakers had been expecting accelerating inflation since 2014. In the interim, they have tried very hard to stretch the meaning of the word ‘transitory’ into utter meaninglessness; as in supposedly non-economic factors are to blame for this consumer price disparity, but once they naturally dissipate all will be as predicted according to their mandate.
That is, actually, exactly what Ms. Yellen said in September, unusually coloring her assessment some details as to those ‘transitory’ issues:
For quite some time, inflation has been running below the Committee’s 2 percent longer-run objective. However, we believe this year’s shortfall in inflation primarily reflects developments that are largely unrelated to broader economic conditions. For example, one-off reductions earlier this year in certain categories of prices, such as wireless telephone services, are currently holding down inflation, but these effects should be transitory. Such developments are not uncommon and, as long as inflation expectations remain reasonably well anchored, are not of great concern from a policy perspective because their effects fade away.
Appealing to Verizon’s reluctant embrace of unlimited data plans for cellphone service was more than a little desperate on her part. Even if that was the primary reason for the PCE Deflator’s continued miss, it still didn’t and doesn’t necessarily mean what telecoms were up to was some non-economic trivia.

This post was published at Wall Street Examiner on December 26, 2017.

Hysertianomics: S&P 500 Index UP 25% Since Trump Election As Fed Keeps Raising Rates (Krugman Said Markets Would Never Recover)

This is a syndicated repost courtesy of Snake Hole Lounge. To view original, click here. Reposted with permission.
Nobel Laureate Economist Paul Krugman said on November 8, 2016 that markets will never recover from the stock market decline that occurred on November 7th, the day before the Presidential election.

This post was published at Wall Street Examiner by Anthony B Sanders ‘ December 26, 2017.

The Integrated Non-USD Platforms

The many new integrated non-USD platforms devised and constructed by China finally have critical mass. They threaten the King Dollar as global currency reserve. Clearly, the USDollar cannot be displaced in trade and banking without a viable replacement for widespread daily usage. Two years ago, critics could not point to a viable integrated system outside the USD realm. Now they can. The integration of commercial, construction, financial, transaction, investment, and even security systems can finally be described as having critical mass in displacing the USDollar. The King Dollar faces competition of a very real nature. The Jackass has promoted a major theme in the last several months, that of the Dual Universe. At first the USGovt will admit that it cannot fight the non-USD movement globally. To do so with forceful means would involve sanctions against multiple nations, and a war with both Russia & China. Their value together is formidable in halting the financial battles from becoming a global war. The United States prefers to invade and destroy indefensible nations like Libya, Iraq, Ukraine, Syria, and by proxy Yemen. The USMilitary appears formidable against undeveloped nations, seeking to destroy their infra-structure and their entire economies, in pursuit of the common Langley theme of destabilization. In the process, the USMilitary since the Korean War has killed 25 million civilians, a figure receiving increased publicity. The Eastern nations and the opponents to US financial hegemony will not tolerate the abuse any longer. They have been organizing on a massive scale in the last several years. Ironically, the absent stability can be seen in the United States after coming full circle. The deep division of good versus evil, of honest versus corrupt, of renewed development versus endless war, has come to light front and center within numerous important USGovt offices and agencies.
The shape of the US nation will change with the loss of the USDollar’s status as global currency reserve. The starting point for the global resistance against the King Dollar was 9/11 and the onset of the War on Terror. It has been more aptly described as a war of terror waged by the USGovt as a smokescreen for global narcotics monopoly and tighter control of USD movements. Then later, following the Lehman failure (killjob by JPMorgan and Goldman Sachs) and the installation of the Zero Interest Rate Policy and Quantitative Easing as fixed monetary policies, the community of nations has been objecting fiercely. The zero bound on rates greatly distorted all asset valuations and financial markets. The hyper monetary inflation works to destroy capital in recognized steps. These (ZIRP & QE) are last ditch desperation policies designed to enable much larger liquidity for the insolvent banking structures. Without them, the big US banks would suffer failure. They also provide cover for the amplified relief efforts directed at the multi-$trillion derivative mountain. In no way, can the global tolerate unbridled monetary inflation which undermines the global banking reserves.

This post was published at GoldSeek on 26 December 2017.

Stockman: US Fiscal Path Will Rattle the Rafters of the Casino

As we’ve reported, the US government is spending money like a drunken sailor. But nobody really seems to care.
Since Nov. 8, the US national debt has risen $1 trillion. Meanwhile, the Russell 2000 (a small-cap stock market index) has risen by 30%. Former Reagan budget director David Stockman said this makes no sense in a rational world, and he thinks the FY 2019 is going to sink the casino.
In a rational world operating with honest financial markets those two results would not be found in even remotely the same zip code; and especially not in month #102 of a tired economic expansion and at the inception of an epochal pivot by the Fed to QT (quantitative tightening) on a scale never before imagined.’
Stockman is referring to economic tightening recently launched by the Federal Reserve. It’s not only the increasing interest rates. By next April the Fed will be shrinking its balance sheet at an annual rate of $360 billion and by $600 billion per year as of next October. By the end of 2020, the Fed will have dumped $2 trillion of bonds from its books. Stockman puts this into perspective.

This post was published at Schiffgold on DECEMBER 26, 2017.

Demand Slides For 2Y Treasuries As Yield Surges To Highest Since Sept 2008

The last time the yield on a 2-Year TSY auction was as high as it was today – 1.922% to be specific, tailing the When Issued 1.899% by 0.3bps – was just a few days after Lehman Brothers failed, with one difference: back then it was sliding, while now the rate on 2Y paper is surging, up from just 1.21% at the start of the year, and up from 1.765% just last month thanks to the latest Fed rate hike.

This post was published at Zero Hedge on Dec 26, 2017.

Trump’s Tax Cuts: The Good, The Bad, and the Inflationary

At last, tax reform is happening! Last week, President Donald Trump celebrated the passage of the most important legislation so far of his presidency.
The final bill falls far short of the ‘file on a postcard’ promise of Trump’s campaign. It even falls short of the bill trotted out by Congressional Republicans just a few weeks ago. It is, nevertheless, the most significant tax overhaul in more than a decade.
Corporations and most individual taxpayers will see lower overall rates. That’s the good news.
Unfortunately, there is also some not so good news investors need to be aware of.
Because no spending cuts will be attached to ‘pay’ for the tax rate reductions, the legislation will grow the budget deficit by an estimated $1 trillion to $1.5 trillion over the next decade. The actual number could end up being smaller…or bigger, depending on how the economy performs. But more red ink will spill.

This post was published at GoldSeek on Tuesday, 26 December 2017.

“You All Just Got A Lot Richer” – Trump Confirms The Biggest Problem With The GOP Tax Cut

As we’ve pointed out time and time again, the biggest problem with the Trump tax cuts is that they overwhelmingly benefit the rich. In fact, shortly after the initial nine-page outline of the program was unveiled by Gary Cohn and Steven Mnuchin, the nonpartisan Tax Policy Center released an analysis that showed the wealthiest 1% of Americans would accumulate more than 80% of the benefit from the tax bill.
One need only glance at this chart from JP Morgan to see how shabbily middle- and working-class voters are treated by the tax bill.
This is a big problem – particularly if the administration hopes to come anywhere near the 2.9% rate of GDP growth sustained over the next 10 years, a feat that would amount to the longest period without a recession in US history. That’s because when the wealthy receive tax breaks, they tend to save the money instead of putting it to productive use – at least at first – as we discussed last week.

This post was published at Zero Hedge on Dec 24, 2017.

2017: A Review Of The Fed, Treasuries, Mortgages and Housing (Volatility and Velocity)

This is a syndicated repost courtesy of Snake Hole Lounge. To view original, click here. Reposted with permission.
2017 has been an interesting year. Donald Trump was elected President and seated in January 2017. The Federal Reserve kept rates near zero with a massive balance sheet for almost all of Obama’s 8 years as President, then started to raise rates and unwind their massive balance sheet AFTER Trump was elected. Note the decline in M2 Money growth after Trump’s election.

This post was published at Wall Street Examiner by Anthony B Sanders ‘ December 23, 2017.

Doug Noland: Epic Stimulus Overload

This is a syndicated repost courtesy of Credit Bubble Bulletin . To view original, click here. Reposted with permission.
Ten-year Treasury yields jumped 13 bps this week to 2.48%, the high going back to March. German bund yields rose 12 bps to 0.42%. U. S. equities have been reveling in tax reform exuberance. Bonds not so much. With unemployment at an almost 17-year low 4.1%, bond investors have so far retained incredible faith in global central bankers and the disinflation thesis.
Between tax legislation and cryptocurrencies, there’s been little interest in much else. As for tax cuts, it’s an inopportune juncture in the cycle for aggressive fiscal stimulus. And for major corporate tax reduction more specifically, with boom-time earnings and the loosest Credit conditions imaginable, it’s Epic Stimulus Overload. History will look back at this week – ebullient Republicans sharing the podium and cryptocurrency/blockchain trading madness – and ponder how things got so crazy.
From my analytical vantage point, the nation’s housing markets have been about the only thing holding the U. S. economy back from full-fledged overheated status. Sales have been solid and price inflation steady. While construction has recovered significantly from the 2009/2010 trough, housing starts remain at about 60% of 2004-2005 period peak levels. It takes some time for residential construction to attain take-off momentum. Well, liftoff may have finally arrived. As long as mortgage rates remain so low, we should expect ongoing housing upside surprises. An already strong inflationary bias is starting to Bubble. Is the Fed paying attention?

This post was published at Wall Street Examiner on December 23, 2017.

Why Monetary Policy Will Cancel Out Fiscal Policy

Authored by MN Gordon via EconomicPrism.com,
Good cheer has arrived at precisely the perfect moment. You can really see it. Record stock prices, stout economic growth, and a GOP tax reform bill to boot. Has there ever been a more flawless week leading up to Christmas?
We can’t think of one off hand. And if we could, we wouldn’t let it detract from the present merriment. Like bellowing out the verses of Joy to the World at a Christmas Eve candlelight service, it sure feels magnificent – don’t it?
The cocktail of record stock prices, robust GDP growth, and reforms to the tax code has the sweet warmth of a glass of spiked eggnog. Not long ago, if you recall, a Dow Jones Industrial Average above 25,000 was impossible. Yet somehow, in the blink of an eye, it has moved to just a peppermint stick shy of this momentous milestone – and we’re all rich because of it.
So, too, the United States economy is now growing with the spry energy of Santa’s elves. According to Commerce Department, U. S. GDP increased in the third quarter at a rate of 3.2 percent. What’s more, according to the New York Fed’s Nowcast report, and their Data Flow through December 15, U. S. GDP is expanding in the fourth quarter at an annualized rate of 3.98 percent.
Indeed, annualized GDP growth above 3 percent is both remarkable and extraordinary. Remember, the last time U. S. GDP grew by 3 percent or more for an entire calendar year was 2005. Several years before the iPhone was invented.

This post was published at Zero Hedge on Dec 22, 2017.

Are Tax Cuts Really Just Undemocratic Exploitation?

Will Wilkinson, the vice president for policy at the Niskanen Center, does not like the tax bill just passed by Congress. Writing in The New York Times, he finds the legislation ‘notably generous to corporations, high earners, inheritors of large estates and the owners of private jets.’
Wilkinson has discovered a surprising source for the legislation he dislikes so much. It is none other than the libertarian idea, promoted by Murray Rothbard and Ayn Rand, that taxation is theft. Under their theory of ‘absolute’ property rights, taxation was ‘morally criminalized.’ Democratic majorities, in this view, cannot override property rights.
Wilkinson rejects this account. ‘The idea that there is an inherent tension between democracy and the integrity of property rights is wildly misguided.’ Democracy is a means for the poor and middle class to protect themselves from exploitative elites. Democracy is a relatively recent innovation; in pre-democratic states, ruling elites exploited the ‘lower orders.’ Those not in the ruling elite need the redistributive democratic state for protection.
The fault is no doubt mine, but I find Wilkinson’s line of thought difficult to follow. How does the thought that taxation is morally wrong underlie a tax bill? If you reject taxation, would you not oppose taxes rather than enact new taxes? Perhaps what Wilkinson has in mind is this: in present circumstances, Republicans under nefarious libertarian influence could not proceed all the way to abolition of taxation. The best they could manage is not to tax the well-off as much as Wilkinson thinks appropriate.

This post was published at Ludwig von Mises Institute on 12/21/2017.

Credit Card Debt Suddenly Surges 18% As U.S. Consumers “Pre-Spend” Tax Relief Savings

With Republicans in Washington D. C. on the verge of passing their first major piece of legislation in the form of comprehensive tax cuts that will allow Americans across the income spectrum to keep a little more of their hard earned cash in 2018, it appears as though eager U. S. consumers may have already “pre-spent” their savings on their credit cards.
As the folks at Gluskin Sheff point out, 13-week annualized credit card balances in the U. S. have gone completely vertical in the last few months of 2017 which should make for some great Christmas gifts for little Johnny and Susie…gifts that will undoubtedly find themselves tucked away in a dark closet, never to be seen again, by mid January.

This post was published at Zero Hedge on Dec 21, 2017.