09 June 2016

Some Charts at 9 AM EDT - Disordered Economic Thinking

"For in that universal call,
Few bankers will to Heaven be mounters;
They'll cry, 'Ye shops, upon us fall!
Conceal and cover us, ye counters!'

When other hands the scales shall hold,
And they, in men's and angels' sight
Produced with all their bills and gold,
'Weigh'd in the balance, and found light!'

Jonathan Swift, The Run Upon the Bankers

Gold and silver have come back sharply to the levels that they had occupied before the smackdown related to options expiration and perception modifying in preparation for the Jobs Report.

I suspect that the Fed will try to squeeze in at least one rate increase before the Presidential elections.  I don't think they can do 50 bp but a 25 bp increase might be feasible with the right wording.

June seems a bit of a stretch, but it does leave the door open for another increase should they find a favorable set of data to smooth their way.

In a very real sense the slight movement of interest rates do not matter all that much at this point to the real economy.  They are a blunt instrument, more symbolic than effective.  But they are almost hypersensitive to unbalanced financial markets made tipsy by excess.

Most of the cheap money is flowing into speculative activities of the same jokers who overturned the financial markets and tanked the real economy in the first place.  And despite their denials, the Fed has their hand on the tiller of regulatory persuasion and power that could change that if it had the will to do it.  But as career minded timeservers, they do not.  They follow power, and the power is in the hands of Big Money and the Banks.

This is the price of a failure to reform.  This is the outcome when one tries to serve two masters.  This is the last stand of a failed ideology and a broken system foundering in the face of hard reality.

This is not policy, it is the hypocritical nicety that excuses mere looting by the powerful in the aftermath of a crisis.

Negative interest rates are the product of disordered economic thinking.  They are the result of an inability to confront the real, more serious problems in the banking system.  And so like so many compromises they are producing unintended effects that are actually counter-productive.

And this is why gold and silver are so attractive as a safe haven refuge, and why disordered minds despise them.