After attempting to "normalize" its balance sheet, the Fed has gone back to QE, growing its balance sheet by 400billion in the last 3 months. All indications are that QE will be here to stay for a long time. The economy is doing well, the stock market is doing really well, and we aren't seeing hyperinflation. Some points for discussion: 1. Is QE sustainable? If not, how do you see things playing out? My gut reaction was to say no it isn't sustainable, but I've read doomsday predictions like a crashed world economy/hyperinflation over the years and they haven't been realized (yet anyway). One downside to QE I see is an even more extreme wealth gap between the mega asset owning class and working class, and eventual social/political upheavals, but that's more of a slow burn with remedies such as elections, and not a sudden crash and lost decade type scenario. 2. Is the current bull run in the markets sustainable for a few more years? The total market index is currently 152% of GDP. That seems REALLY overbought, and the last 2 times it went above 100% was before the dotcom and 2008 financial crises. However, I don't think we've ever been in a situation like this either, where the Fed is basically guaranteeing liquidity through treasury purchases to keep markets going. 3. Given the current situation, what are you doing to protect/grow your wealth? Are you invested in shares/indices/gold/btc? Treasury yields are low, and corporate bonds look like another bubble. 4. Political implications - if the economy doesn't fall apart by election time is it a given that it's 4 more years of Trump?
What do you do when a recession hits if you keep juicing the economy when it supposed to be doing well? So no I don't think it's sustainable forever.
No one really knows. Greenspan policies lasted almost two decades and it's lower rates caused constant asset and equity bubbles across the world. Incidentally, people loved his reign for opening up markets and intense investment into globalisation. Part of the reason for justifying qe are the huge account surpluses sovereign wealth funds and national banks keep against the dollar. The more they save, the more it hurts America competitively when there's a strong dollar. I haven't read deeply into feds justification of printing more money to have more money on hand. One cause of the 2008 crisis was a banking panic on the repo market, so having hundreds of billions of cash on hand to spray and pray any meltdown does carry some peace of mind. But this is a Free Money economy for anyone with golden keys. Customers can't get lending rates the Fed offers, but if you can, you're pretty much making mad money just by moving pennies on the dollar in the billions. But given past events where no one landed in jail, wholesale fraud or negligence shouldn't be off the table if you want to justify your position To cut this short, the Fed's move to sneak in qe alongside running near zero interest rates will ultimately cause the markets to take on more risk, just like how introducing ABS and airbags caused drivers to push their cars harder and increased car crashes. Kinda ironic the party that believes in fiscal responsibility and not giving handouts/bailouts (moral hazard) is the party business leaders feel more confident to amp up risks... only to hide behind bailouts and federal takeovers when it all goes bust. Only ironic if you forget history and believe in everything they say.
I'm surprised that this hasn't been more of a topic in the political realm in general, which is surprising given the 1% rich rhetoric from some the Democrats. Adding a few percentage points to the tax rate means nothing if trillions continue to be transferred via QE to the assets of the wealthy. Would a Democrat president inheriting the current dynamic dare turn off the pump and risk a collapse under his/her watch?
I think Warren or even Sanders would unless she was persuaded that extra cash on hand would help smooth out blips in the repo market. iirc, buybacks from ramping down earlier qe phases were positive returns, but no one knows what'll happen when the music stops playing or when there's light at the end of the tunnel. QE, after all was popularized during Japan's lost decade. I think the bank reforms during Obama reduced the chances of zombie banks carrying over because of it's reserve requirements, but that's just a baseline metric. Something like venture capital or private equity groups could be hemmoraging money but are appearing fine through an endless low interest debt cycle. Debt from public corporations was also flagged as a concern a couple years ago, but this year's predicted recession never happened, so who knows if they're starting to deleverage to avoid a liquidity crunch. When I had more free time (I'm not a finance professional), I once read a paper on the root causes of the crisis. It likened it to an old fashioned banking panic and run. The FDIC and insurance on personal deposits up to 250k eliminated banking runs on the consumer end. Lehman exposed an ongoing systemic risk because of the size and amounts of money being transacted in the repo market is so huge that even the Fed couldn't cover it. You'd need a fed of feds to eliminate credit surges and panics because they'd be the lender of last resort and trade indiscriminately. I used to remember more quotable details about the Deutsche Bank, Euro zone and the ECB but their situation is why the Fed of Feds is not a realistic answer. So if the Fed is already assigning more amounts into the money supply, what's their playbook for when **** hits the fan and there are five bad apples among 25? Does that mean they print forever? I'm not heavily into this field..Maybe that situation isn't a realistic outcome. And that's the heart of your question's answer. The average American isn't exposed to the financial banking world unless they work in it or have some interest in learning it with a base in econ not taught in high school. People think of sub prime (rampant Democrat lending to The Blacks) and Lehman when it comes 2008, and the media is fine repeating it. They also don't describe the Fed's rationale or what the repo market is in any actionable or relatable way. "Oh it's just a marketplace to get short term money by putting up something in return." Maybe people should know what goes into financial sausages. Probably not part of the brain any Joe wants to activate unless they're trying to pick what beats the spread. It's so far and tangential to the point where Ray Dalio's warning of Free Money causes some pause and no response. But when your neighbor our cousin is laid off, then there's hell to pay and people start paying more attention to "fairness" (f u Obama, I'm joining the Tea Party and pretend to live like my founding fathers until Trump!) and start bringing up ideological purity of stuffy macro econ theories that magically start meaning something if only in the political sense. Dalio's colleagues muted reaction to his warning makes sense if they don't believe public will/action is worth the energy to take the risk and oppose these juicing policies. So I guess the good ones are preparing for the worst rather than making someone else foot the bill? Maybe the government isn't a Beast, but rather a genie. How many wishes do we have left...
fyi, QE is attendant to a very specific/narrow economic circumstance, when the effective interest rate is at zero or below zero, when the economy is not growing or shrinking when the economy is doing well, w the GDP growing, such a move by the Fed it is not QE. what the Fed has been doing, is effectively, currency manipulation to counter China's currency moves as pointed out by my post here, http://bbs.clutchfans.net/index.php...anipulation-not-currency-manipulation.301256/ ' btw, "normalize its balance sheet" is meaningless, what exactly are you trying to say ?
priima facie evidence of you not understanding what QE is. you do understand that the Fed is an independent body, no? monetary policy moves are up to the Fed chair, not the President
I probably don't, but I understand English better than you. That's assuming they have a backbone. He trashed then replaced Yellen for raising rates and he is already breaching protocol with his own choice. This is a precedent that'll likely stick with his successors. https://www.google.com/amp/s/amp.ft.com/content/2389d7ec-1b3c-11ea-97df-cc63de1d73f4
I wish there was a 'common man's' way to hedge. What I mean by that is that I can invest in a stock or fund pretty easily. But I don't know how to hedge for the upcoming economic downturn. What goes up must come down, right? I can move my money from their current funds into something safe, low yielding. Is there a way to hedge? Like the Don't Pass Line?
u need to stop lying. Yellen was a dovish Chair. she kept the interest rate low, effecting a weaker USD. Trump didn't like a weak USD, so when her term expired, Trump replaced her w a hawkish chair Powell. going into the Dec 2018 Fed meeting, Trump publicly called for Powell to lower the rate. Powell effectively gave Trump the finger by raising the rate. this will set a precedent for future chair.
Thanks! I really need to get a handle on how to properly manage my IRA. I just contribute and sit back. But it seems obvious that a downturn is coming. This is unsustainable....like the 22nd without crapping out. It's coming.
A friend and I tried to develop a 'can't lose' craps strategy. We worked on it for about 2 months and took it to the casino. After about 4 hours of playing we were both about even. We hedged so much that we never got hurt but never hauled in a big chunk. My take away from that is that unless you gamble (press the odds, forget hedging) you aren't gonna have a big day.
suggest that u start a thread on the “can’t lose” craps strategy. btw, what’s ur take on hopping bets?
ur calling the what the individual dices will be. eg; for a 4, u'd be calling that the dices will be 1/3 or 2/2 hopping. some hopping bets have ~ 30 to 1 payoff for a 9, it'd be 1/8, 2/7, 3/6 or 4/5 hopping i too use a "can't lose" strategy. one time, after playing for ~ 4 hrs, i was slightly ahead. got sleepy, and just want to go to my room to sleep. So i divvied up all my $ on all the hard ways and hopping 2/2 and 5/5 bets. the roll was 5/5. the payoff on the hard 10 and 5/5 hopping was close to 40 to 1
I've always read those were sucker bets. But you hit one or two and the payoff makes it worth it. My dad plays these bets and has a lot more stories about winning 1K or more than I do. So now I'm the sucker. Which brings me back to my conclusion about playing craps. If you don't gamble (play the big odds) you won't win big. The 2nd part of the conclusion is knowing when to walk away from a cold table. I've tried playing the don't pass/don't come on cold tables and it didn't work for me. Bad luck is bad luck.
one roll bets w relatively low pay offs, such as field bets, are sucker bets. To the extent that hopping/hard way bets are not one roll bets, they’re not sucker bets
Definitely more sustainable than hard money dipshits who are in the middle of a 2 decade losing streak. But since most have long since pivoted to the racism - shrug emoji
