REALITY IS OUR FRIEND AND WE TOLD YOU THE ACTIONS OF THE FEDERAL RESERVE BEFORE THEY RELEASED THE INFORMATION: Oil plunge, Russia crisis challenge US Federal Reserve Washington (AFP) - The relentless fall in oil prices and Russias plunging currency pose big challenges as the US Federal Reserve opens a two-day meeting Tuesday. The Feds last meeting of 2014 was expected to confirm its path toward monetary policy normalization after holding its base interest rate at the zero level for six years to bring the country out of the Great Recession. But stagnating economies in Europe and Japan and slowing growth in China, coupled with the threats to markets and the financial system from the oil price and Russian crises, could force the US central bank to weigh a pause. While the worlds most powerful central bank is unlikely to make any immediate changes to its interest rate and liquidity stance, it could signal via comments and economic forecasts a readiness to stick to that stance for longer than expected to help the global economy through a rough period. THE REVOLT: The Fed has already given everyone guidance on what is required for them to raise interest rates, it seems that many in the financial sector dont believe the Feds or dont Trust the Feds to keep their word. Continue: The main focus of the Fed, the US economy, has been growing strongly enough for the central bank to begin pulling away from the extraordinary easy-money policies in place since 2008. Unemployment has come down to 5.8 percent; job generation in November was unexpectedly strong; and year-end retail sales show consumers comfortable with spending and confident about the year ahead. The one question that has dogged the members of the Federal Open Market Committee, the Feds policy arm, has been inflation: it has been too weak to confirm that the economy is motoring under its own power. THE REVOLT: Maybe I can show them why inflation has not reared its ugly head yet. The Fed, in essence, gave the Banks hundreds of Billions of Dollars hoping that the Banks would lend the money out and put that money into circulation; however, the Banks took the money and instead of taking risks by lending that money they bought U.S. Bonds that paid a higher interest rate than the Fed Charged at zero Risk. Then the Banks bought equities that rose when all banks entered into the equity market cause stock prices to rise to record levels. As long as the money the Fed gave the banks did not enter into circulation there could not be any Inflation. Banks are now disinvesting from equities and soon the economy will get a lot better due to the lower oil and fuel. Economic activity will increase lowering the risk of lending. Once Banks start lending the money that the Fed gave them at near zero percent, then you will see Inflation because the money will finally be in circulation. Rule #1: A long as the money created by the Fed is not in circulation, Inflation is impossible. Continue: And sinking prices of oil and other key commodities and many general imports have in the past two months slowed inflation even more. THE REVOLT: I dont even know why they said this, oil prices rising or falling does not contribute to Inflation. Inflation is a result of printing money. Only that function increase or slow inflation. Continue: For weeks analysts have guessed that the main outcome of the FOMC meeting would be a change in the language it uses to steer market expectations on interest rate policy. Over the past year, the panel has repeatedly said that a Fed funds rate increase would only come a considerable time after the end of the quantitative easing program, which was wound up in October. That language could be dropped for an even more opaque qualifier that would give the FOMC more flexibility, to either move quickly if growth and prices pick up unexpectedly, or hold off indefinitely if growth stalls. One Fed official has suggested the FOMC just say it will be patient before lifting the rate. THE REVOLT: The market is adding more to this picture than is necessary. The Feds are not all that concerned about growth. The goal was to create an inflationary environment. We were in a Deflationary spiral that would have destroyed the governments ability to pay its bills, so the objective was to create an environment that would ensure inflation. It worked. So, everyone should look for inflation in the markets to get an understanding of what the Fed actions will be. I dont see inflation and the Fed wont move from its strategy until it see and know that they have succeeded in their goal. Continue: Any other signal change from the meeting would come from the collective forecasts of FOMC members of economic growth, unemployment, inflation and rates, which are studied closely for signs of when a first rate hike will come. For the past year the general view has been that the Fed would move in the middle of 2015. Economist Chris Low of FTN Financial noted that two senior Fed officials known to be more hawkish on raising interest rates both represent US regions where growth could slow significantly due to the oil price drop. They may back away from (their hawkish stance) in their forecasts, he said. Even so, the 50 percent fall in the price of crude in just six months could turn the US central bankers focus to global issues and how Fed policy might help or hurt the world economy. The steepness of the fall in crude prices, many fear, could spill over into the financial sector and foment more shock waves through the economy. And Moscows inability to stem the rubles slide despite hiking interest rates overnight to 17 percent could further sink its economy and spread collateral damage into already-struggling Europe. Sadly, most of the financial woes could have been resolved with Congress; however, that bunch is completely clueless. We have not had Republican Congressmen in Washington in a very long time. All of the great and imaginative men and women seemed to have disappeared, leaving complete idiots to run the country into the ground. Ayn Rand might have gotten it right, only the John Galts of the world were not the international corporations, they were the men and women of Congress that knew how to conduct business, write effective regulations and create the environment to conduct business. The Tea Party is a Cancer, those that are left of the Republican Party are on the sidelines waiting for something, but I dont know what. We need real business men that know how to run a country, we need laws that encourage investments and we need to grow this economy to fix the actual problems that exist. Todays Congress dont know what this Fed has done to solve problems Congress caused, but that solution comes at a very high price. To bad that this Congress dont even know what the hell I am talking about.
Posted on: Wed, 17 Dec 2014 17:14:51 +0000