Monetary Policy Will Stay Accommodative For a Very Long Time, Like Forever

Mish

Cleveland Fed president Loretta Mester discussed monetary policy at a virtual meeting today. Let's tune in.

Mester Comments 

We’re going to be accommodative for a very long time because the economy just needs it to get back on its feet,” Mester said during a virtual discussion organized by the Toledo Rotary Club.

Mester said shThee supports Treasury Secretary Janet Yellen’s efforts to work with regulators to make sure that investors are being protected.

We want them to make sure the game being played is a fair game,” Mester said, adding that the U.S. central bank would continue to monitor for signs of excess in financial markets.

The above via Reuters.

Fed Groupthink

Mester is part of the groupthink culture at the Fed that does not know what inflation is.

Moreover, every person on the Fed is either an economic dunce who cannot spot bubbles or a bold-faced liars about what they are doing. I suspect a healthy dose of both.

The Fed will "continue to monitor for signs of excess in financial markets," just like they did in 1998, 1999, 2000, 2005, 2006, 2007, 2008, and of course now. 

They will continue their vigilant monitoring up until the next crash. 

National Debt

National Debt 2021-02-08

National debt is approaching $28 trillion. I snipped that image from US Debt Clock. If you haven't been to the site, please check it out. It is debt in real time, updated every second.

Three percent of $28 trillion is $810,000,000,000 ($810 billion). 

If the interest rate was 3%, that is the amount of money the government would have to collect annually just to pay interest from now until eternity unless progress was also made on paying down principle.

Inflation and Speculation are Rampant

Inflation as measured by soaring credit, stock market bubbles, the bubbles in junk bonds and housing is through the roof. 

The Fed either does not see it or prefers to ignore it and is being disingenuous about it. 

Either way it's a problem.

Inflation: How Should We Measure It?

The Fed brushes all this aside by pointing at the CPI. I have news for the Fed, the low CPI is a mirage. 

It's not the only measure of inflation that matters. 

For discussion, please see Inflation: How Should We Measure It?

There Are No Temporary Measures, Just Permanent Lies

On April 20, 2020 I declared There Are No Temporary Measures, Just Permanent Lies.

Fed Chair Jerome Powell stated the blatantly illegal junk bond buying measures it was taking were "temporary". 

What a hoot.

Just like the Fed's announcement that its previous balance sheet expansion was "temporary".

The Fed had 10 years to unwind its balance sheet after the last crisis, but never did. Now we have new balance sheet records every week.

There are no temporary measures, just permanent lies.

Very Long Time or Forever?

When the Fed says "accommodative for a very long time" they may as well be honest. They mean forever (or some sort of global currency crisis along the way to forever).

My bet is a currency crisis comes first.

Mish

Comments (46)
No. 1-21
numike
numike

“The way to crush the bourgeoisie is to grind them between the millstones of taxation and inflation.”
― Vladimir Ilyich Lenin

Eddie_T
Eddie_T

Isn’t the real story.....that the Fed is willing to risk a currency crisis....the prevailing opinion being that it’s unlikely in the short term...in order to prevent a deflationary credit crisis?....Because we all know we don’t like those much.

The expectation for corporate bond defaults has been revised down, right? Because of easy money refinancing...

Equities look very frothy to me now.....in a way they didn’t a year ago. I predict a blow-off top followed by serious corrections......other assets to follow (gold might lead, as it sometimes does)...but generally a vicious loss of nominal wealth, followed by a recession and a credit crunch. Bailouts to follow for the banks and elites in financial services.

I prefer the inflation to continue....it is making me richer, after all....and when the music stops, I will have to make all kinds of adjustments......although at this point I feel pretty well hedged.....

The working stiffs will probably go all in on stocks with their $1400 checks....we have some time left.

Mr. Purple
Mr. Purple

My 21yo son came yesterday and said he was all in on Ethereum. I mean, why not ... he has zero living expenses and he's working part-time and attending university.

Does that signal a top?

Doug78
Doug78

To stop the debt increase they have to raise taxes. You can't raise taxes because the economy would crash even more. You can't raise taxes on the extremely wealthy individuals and companies because the wealth is in tax havens and untouchable. Austerity is out unless you want to risk violent revolution so the only thing to do is keep on doing what they do and hope that something such as a Miracle happens. Mish, would you want them to raise taxes now or move to a gold standard? What would you like for them to do?

Broke_Prole
Broke_Prole

US Debt only up a half a billion since your screenshot 2 hours ago. I think we got this!

Broke_Prole
Broke_Prole

US Debt only up a half billion since your screenshot 2 hours ago. I think we got this!

bradw2k
bradw2k

My guess is USD gets in one last hurrah when these vertical markets crash and people can't get out of TSLA and BTC and everything else fast enough. Then immediately Fed and the rest of Washington will try to nuke-with-free-money their way out of the deflationary pit, creating global financial chaos. Physical commodities will be the place to be. What am I missing?

Sechel
Sechel

If congress engages in the right fiscal policy the Fed should take its foot off the gas. The yield makes no sense

Greggg
Greggg

Off topic but you probably want to listen to this. It takes the first 5 minutes for the nutshell story and the details and proof takes another 35 minutes. The documentation is in there. https://www.youtube.com/watch?v=GCHA-ZDjIQM

PecuniaNonOlet
PecuniaNonOlet

Let the 20’s ROAR baby cuz the 30’s are gonna depress ya!

Tengen
Tengen

Nice to see my hometown Fed branch chime in, usually it's the other branches making headlines with crazy statements.

Every Fed statement since 2008 could be summed up with the "nothing to see here!" Leslie Nielsen gif.

inonothing
inonothing

Is this zerohedge?

Stan877
Stan877

They will stay accommodative until they are forced otherwise.

anoop
anoop

large debt is a problem only if the software that does the accounting is unable to handle that many digits. otherwise, it's just a number.

PecuniaNonOlet
PecuniaNonOlet

Is anyone watching the market, some of these digital coins are insane, RIOT is up 40% in one day. It's like the dot com bubble all over again, IOMEGA comes to mind and the quintessential stock that imploded. Even some of the trash I picked up back in 2008 is coming back to life.

This won't end well for many when it all comes crashing down.

Realist
Realist

Markets can stay irrational longer than you can stay liquid. Your best strategy in the long run is extensive diversification, which should always include a cash component to take advantage of opportunities that present themselves. It's worked beautifully for me for decades. When markets (stocks, real estate, etc) appear more irrational than usual, I typically raise my cash component. I was up to 25% cash last January (as high as it has been in many years). Dropped as low as 5% in March. Now back up to 20%. Waiting for more opportunities. The best part was that I was able to significantly increase my philanthropy in a year when people needed it more than ever.

Call_me_Al
Call_me_Al

If the federal government were 'in control' and issuing its own currency instead of borrowing it into existence from a private entity, then there wouldn't be a need to collect $810,000,000,000 in taxes to pay down the interest if the prevailing rate reached 3%.

JonSellers
JonSellers

There's nothing the Fed can do until business investment in dollar terms picks up in a huge way. The problem is there is no real profitable demand for money. So interest rates are going to be low.

BDR45
BDR45

"make sure investors are protected" ..... What about a large segment of the population who can't afford to make "investments"? Many can barely afford to buy enough food, let alone protect or hedge against inflation. I understand Pareto's theorem, but that's not much comfort to all my friends in my neighborhood making
$8 per hour.

BDR45
BDR45

At what point does the public lose all confidence in government?

WC Varones
WC Varones

Loretta Mester is an anagram of T-rate Molester


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