News From The San Francisco Federal Reserve

View the full document here. Mark Speigel from the San Francisco Fed details his optimistic opinions.

 

A few points to balance his views…

“Third-quarter GDP growth was revised upwards to 4.1% “

“Inflation remains below the Federal Open Market Committee’s (FOMC) longer-run goal of 2%”

Does this mean anything to anyone? I haven’t checked recently but considering they change the metric for calculating GDP and inflation as often as they change underwear it’s hard to value these numbers.

 

Shadowstats.com has some alternate metrics which were used by the government in the past. The include some very important data like food, fuel and home prices. As you can see they vary a lot from the governments reporting.

 

 

 

“The Committee will add to its holdings of mortgage-backed securities at a pace of $35 billion a month rather than $40 billion a month, and will add to its holdings of longer-term Treasury securities at a pace of $40 billion a month rather than $45 billion per month. The statement noted that asset purchases are not on a preset course. The Committee also indicated that it now anticipates that it likely will be appropriate to maintain the current target range for the federal funds rate well past the time that unemployment declines below 6.5%. “

 

It’s been a weird experiment to watch the monetary powers that be muddle through the economic crisis testing their footing as they step forward. But the language above is clear is day…they will attempt to withdraw QE unless a problem comes up.

Those potential problems could be the following;

1) Fall in real estate values due to higher interest rate

2) Higher interest rates for corporate bonds (more retail stores closing unprofitable locations)

3) Reversal of stock market prices

4) Gridlock in the derivatives markets

5) Reduction in Government spending

 

I could go on and on but these are the big starters which would kick off another recession. I do believe however that they will reverse course and begin printing money as required to offset any of these issues. Which is good in the short term because we can see business as usual but bad in the long term as the economy becomes brittle and weak.

 

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