In the US, the monetary & fiscal stimulus spigots are turning off as the Fed threatens to start tapering in November and Congress devolves into gridlock over both the next stimulus package as well as the debt ceiling.
The US currently spends 111% of its tax receipts on the true cost of servicing its debt & the Fed is now chained to printing up the difference.
This is a no-win situation.
Outside the US, longstanding stable political regimes like Angela Merkel’s party in Germany are voted out of control. And Asia, particularly China, is experiencing a pronounced economic slowdown, exacerbated by failures like the Evergrande crisis.
Add to that rising energy costs, natural gas & petrol shortages, and electrical power rationing across the globe, and the road ahead looks downright scary.
How will this turbulence resolve? And how are markets likely to react?
To shoulder the challenge of making sense of this all, I’m thrilled to welcome Luke Gromen back onto the program.
Luke Gromen is founder of the highly-respect macro/thematic research firm Forest for the Trees.
Larry Summers Slams “Woke” Fed “Losing Control” Of Inflation
Larry Summers Slams "Woke" Fed "Losing Control" Of Inflation
You know it’s bad when you’ve lost Larry Summers…
It appears the so-called…
You know it's bad when you've lost Larry Summers...
It appears the so-called 'progressives' push to ever more signaling of their virtue and cradle-to-grave dependence on bigger and bigger government (as long as you 'obey' the narrative) is just too much for the former Treasury Secretary who warned that monetary policy makers in the U.S. and elsewhere for paying too much attention to social issues and not enough to the biggest risk to inflation since the 1970s.
Speaking to a virtual conference organized by the Institute of International Finance, Summers rebuffed the newly 'woke' Fed:
“We have a generation of central bankers who are defining themselves by their wokeness,” Summers, who is now a professor at Harvard University, said on Wednesday.
“They’re defining themselves by how socially concerned they are.”
Read that again and consider the source - Bill Clinton's Treasury Secretary and head of the National Economic Council in the early years of the Obama administration!!
His fear is simple: Fed talking heads are too focused on social justice that they are taking their eye off the ball that is their mandated job of managing inflation and jobs.
“We’re in more danger than we’ve been during my career of losing control of inflation in the U.S.,” the 66-year-old Summers, a paid contributor to Bloomberg, said.
“We’ve gone even further towards losing it in Britain and I think we’re at some risk in Europe.”
Summers also - quite ironically for someone who has supported fiscal expansion as a means of promoting macroeconomic stability - blamed the Fed and other central banks for not preparing investors for the tough steps policy makers will probably have to take to rein in inflation.
“If those actions come, they’re going to be very shocking and very painful in financial markets,” he said.
This is not the first time Summers has raised a red flag. As James Caton writes at The American Institute for Economic Research, in February, Summers participated in a discussion with Paul Krugman where he outlined his concerns. He notes that:
The stimulus of 2020 was about twice the size of the output gap in the same year. The proposed stimulus for 2021 was, at the time, 4 times the size of the projected output gap.
Unemployment compensation provided to the bottom 30% of earners was more than double their losses from Covid-19.
Elsewhere, Summers explains that the current labor shortage will drive up wages and that we have already seen monthly rents for new tenants increase by 17 percent, on average, above the rents paid by previous tenants.
Summers believes that the “toxic side effects of QE” are not being recognized by policymakers. In an interview, Larry Summers used a rather peculiar metaphor to describe this situation.:
So, I look at that dwindling hole. Then I look at expenditures that aren’t hard to add into the multiple trillions, and I see substantial risk that the amount of water being poured in vastly exceeds the size of the bathtub.
When I heard Summers use this metaphor, my mind was drawn to a passage I first read over a decade ago from Benjamin Anderson in his reflection on the Great Depression. In referring to monetary policy that preceded the initiation of the Great Crash in October 1929, he wrote:
When a bathtub in the upper part of the house has been overflowing for five minutes, it is not difficult to turn off the water and mop up. But when the bathtub has been overflowing for several years, the walls and the spaces between ceilings and floors have become full of water, and a great deal of work is required to get the house dry. Long after the faucet is turned off, water still comes pouring in from the walls and from the ceilings. It was so in 1928 and 1929.
Consistent with both statements is the belief that the monetary policy provided more stimulus than was merited by prevailing economic conditions. And consistent with Summers’ belief that excessive monetary support can be toxic, Anderson bemoans the extensive damage that can occur when the water spigot is left on for too long.
Instead of racial 'equity' or climate change, The Fed needs to concentrate on monetary policy. This is a serious job that requires serious focus. Perhaps Summers recognizes that the post-2008 monetary framework has created a fiscal Fed. Or maybe he will.
Summers’ demands for limits to the aims of monetary policy might be politically feasible under the old Volcker-Greenspan regime. Under that monetary regime, inflationary pressure placed strict limits on the expansion of the balance sheet. The political incentives now faced by both politicians and Fed officials promote precisely the sort of oversized fiscal expansions that we have observed in the last two years, the same expansions that Summers decries.
The post-2008 framework has incentivized the destabilization of monetary policy. The sooner we recognize this fact, the sooner we can seriously discuss a solution to the problem.
Treasury Official Warns Using Stablecoins For Payments “Raises A Whole Set Of Issues”
Treasury Official Warns Using Stablecoins For Payments "Raises A Whole Set Of Issues"
As bitcoin prices surge in anticipation of the SEC finally…
As bitcoin prices surge in anticipation of the SEC finally approving a bitcoin ETF (after years of turning down one application after another), one top crypto regulator from Treasury - Treasury Undersecretary for Domestic Finance Nellie Liang - offered a frank explanation for why the Treasury Department sees stablecoins as an important locus for crypto regulation. The issue is that stablecoins solve a critical problem for crypto: they're rarely volatile, by design. Bloomberg reported earlier this month that tether, one of the biggest stablecoins, appears to be a massive Ponzi scheme. Although it saw some volatility in response, on Thursday, tether was trading right around $1.
Why is it that tether didn't collapse after being accused of being a Ponzi scheme (not like this is even the first time)? Because stable coins like tether have become a central part of the crypto-trading economy, allowing traders to move easily into and out of positions in different coins without ever needing to re-convert their crypto to US dollars. As Liang put it, stablecoins play a "foundational" role in the crypto economy. While they're mostly used for trading right now, the Treasury is keeping a close eye on whether stablecoins start being used for commerce, something that might trigger a backlash from the Treasury since it would be a sign that a real competitor to the US dollar might actually be emerging.
As Liang added, stablecoins being used for payments (like Mark Zuckerberg infamously tried to do) "raises a whole set of issues".
“We believe they’re kind of foundational to crypto and future crypto services,” Liang said Thursday during a virtual event sponsored by the Institute of International Finance. “They’re being used mostly for crypto trading currently. They also have the potential and have started to be used for payments -- and may be widely used for payments, and that raises a whole set of issues that the President."
“They’re being used mostly for crypto trading currently. They also have the potential and have started to be used for payments -- and may be widely used for payments, and that raises a whole set of issues that the President’s Working Group wanted to focus on,” she said.
At this point, more regulation for the crypto community seems virtually inevitable with Janet Yellen running Treasury and Gary Gensler running the SEC. President Biden and his advisors have even considered imposing an entire new regulatory framework for crypto via executive fiatn (no pun intended).
Liang is a member of the President's Working Group on crypto regulation. For those who aren't familiar with it, the working group includes the heads of Treasury and several other federal agencies. The group is planning to issue a report on stablecoins by the end of the month. In addition to the policy-setting team, the DoJ has put together a task force to combat cryptocurrency-related crime as well.
But whatever happens, keep in mind: whatever lip-service federal policymakers give about stablecoins (including the FedCoin which is being studied by the central bank) being a key part of innovation, in reality, they see it as one thing: a threat.
US stocks close higher on strong earnings reports
Benchmark US indices closed higher on Thursday October 14 boosted by strong quarterly results of major banks and upbeat economic data that helped alleviate…
Benchmark US indices closed higher on Thursday, October 14, boosted by strong quarterly results of major banks and upbeat economic data that helped alleviate investors’ concerns.
The S&P 500 was up 1.71% to 4438.26. The Dow Jones rose 1.56% to 34912.56. The NASDAQ Composite rose 1.73% to 14823.43, and the small-cap Russell 2000 climbed 1.44% to 2274.18.
The US stock market has been volatile in recent weeks over concerns about inflation, rising energy costs, and economic slowdown. Money-managers interviewed by Wall Street Journal have downplayed Thursday’s rally, stressing that markets could expect more bumpy road ahead.
On Thursday, the Labor Department said that US jobless claims fell to 293,000 in the week ended Oct 9 from 329,000 in the previous week.
Basic materials and technology stocks were the top gainers on the S&P 500. All the 11 stock segments of the index rose on Thursday. Industrials, financials, healthcare, and real estate stocks were among the top movers, while consumer non-cyclicals, energy, and utilities were the bottom movers. Investors were motivated by strong quarterly results of major banks reported Thursday.
The Bank of America Corporation (BAC) stock jumped more than 4% after reporting strong third-quarter results before the opening bell. Its revenue rose by 12% to US$22.8 billion in the quarter.
Global investment bank Citigroup, Inc. (C) stock rose 0.75% in intraday trading after reporting a 48% jump in third-quarter net revenue to US$4.6 billion, boosted by lower credit costs. CEO Jane Fraser said higher consumer spending and growing engagement across digital channels lifted the results.
Shares of Morgan Stanley (MS) jumped 2.67% in intraday trading after its revenue rose to US$14.8 billion in the quarter from US$11.7 billion a year ago. Its net income also rose to US$3.7 billion from US$2.7 billion in the same period last year.
Wells Fargo & Company (WFC) stock fell 2% after reporting revenue decline in the quarter. It fell by 2% YoY to US$18.83 billion. Its net income rose to US$5.12 billion from US$3.2 billion a year ago.
Domino's Pizza, Inc. (NYSE: DPZ) stock was down 0.30% after reporting its quarterly results. Its net income rose 21.5% YoY to US$21.3 million, in the third quarter, helped by strong global retail sales. However, its same-store sales in the US dropped 1.9% YoY.
In healthcare stocks, UnitedHealth Group Inc (NYSE: UNH) jumped 3.93% after raising its full-year guidance. Its third-quarter revenue beat Wall Street forecast. It was up 11% YoY to US$72.3 billion.
In technology stocks, Taiwan chipmaker TSMC (TSM) rose 1.95% in intraday trading after its third-quarter net profit surged 13.8% to US$5.56 billion on strong global demand for semiconductors.
Shares of Walgreens Boots Alliance (WBA) rallied more than 7% after the pharmacy chain reported a revenue boost of 12.8% to US$34.3 billion from the year-ago quarter. It also announced to acquire a controlling stake in primary-care network VillageMD.
Futures & Commodities
Gold futures were up 0.15% to US$1,797.35 per ounce. Silver was up 1.71% to US$23.567 per ounce, while copper rose 2.08% to US$4.6098.
Brent oil futures increased by 1.25% to US$84.22 per barrel and WTI crude was up 1.28% to US$81.47.
The 30-year Treasury bond yields fell 1.05% to 2.020, while the 10-year bond yields declined 2.25% to 1.514.
US Dollar Futures Index decreased by 0.10% to US$93.983.dollar gold silver inflation commodities markets fed us dollar
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