Debts are high, governments in the first world are printing money and banks are going down with every passing day. Recovery and growth figures are all illusionary. We are living in a world of economic repres- sion where central banks are failing again and they would create another DEPRESSION for the global economy. In the 1930’s experts 9/10 of the time blamed failure of private business. It was due to over specula- tion and extension of the 1920s and speculative investments abroad. In fact, nothing could be farther from the truth.The great depression of the 1930s was produced by failure of the governments, failure of monetary policy and failure of Federal Reserve System.This time around the Federal Reserve would fail in another fashion and would create a huge crisis in the form of INFLATION. Now they would create inflation and blame labour /management for this crisis from 2007 to 2017. I potentially see more volatility ahead and nervousness in the market among the investors.
The whole driver is going to be the inflation rate by the year end. Inflation is made in only one place i.e. Washington DC.There is a Greek temple on the constitutional avenue which houses the Federal Reserve board. Imagine, once the Fed takes its foot off the gas, the European Central Bank has launched its own version of QE to boost business activity, and China is doing the same, even as Japan continues its own massive stimulus and India ponders whether to join the central bank party. The result is that we are living in global liquidity cornucopia.
Adding to the global cash stockpiles are pools of money that are less than fully invested, from the $5 trillion on U.S. corporate balance sheets to the more than $6 trillion controlled by sovereign wealth funds in nations stretching from SaudiArabia to Singapore.
According to my market intelligence findings there is what is called a non-consensus view that the personal consumption expenditures price index excluding fuel and food will reach 2 percent by the end of this year.The Fed’s benchmark rate will jump to 1 percent by the end of next year and 2.50 by the end of 2016. Furthermore, there will be tightened labour and rental markets, a less-disinflationary impact from imports and price gains at the factory gate.
BOND YIELDS AND INFLATION RATE
Such an environment sets the stage for a surge in bond yields by the end of the year, forcing the Fed to retreat from its low-interest rate commitment.The 10-year Treasury yield will rise to 3.25 percent in December and might touch 4 percent by the end of 2015. In my humble opinion, the US economy is in the eye of a “gigantic financial hurricane.”
It’s my opinion, that perhaps by the end 2014, certainly by the middle of next year, we will go into the trailing edge of the hurricane. It’s going to last much longer, be much more serious and be quite different than the unpleasantness we remember from 2008 and 2009.Many top global economists are urging the central banks to increase inflation targets to re-energise economies around the world. Central banks should increase their inflation target from 2 percent to 4 percent.
According to former International Monetary Fund Chief Economist Kenneth Rogoff, this is a bad idea. Moreover, he says completing the transition smoothly would be almost impossible.After two decades of telling the public that a 2 percent inflation is Nirvana, central bankers would baffle people were they to announce that they had changed their minds — and not in some minor way, but completely, recalling the market’s “taper tantrum” of the Federal Reserve’s planned tapering of its stimulus last year.
Hence, a move by central banks to a long-term 4 percent inflation target risks triggering the same dynamic.A much better solution is to move completely to an electronic govern- ment currency. Paying interest could be done with just a push of a button. Printing large denominations, which are often used for criminal activities, is especially ill-advised.
Moving to a twenty-first-century currency system would make it far simpler to move to a twenty-first- century central-banking regime as well.
He compares the push to a higher inflation target with the attempt to restore the gold standard after World War I. Nations financed their war efforts by printing money and creating inflation. Because they couldn’t debase money while it was backed by gold, they abandoned the gold standard.They tried to restore the standard after the war but failed largely because of they could not restore public trust.
According to Nobel Laureate economist Paul Krugman that even a 4 percent target is too low. Econo- mies entering a recession with low inflation can easily become “stuck in a self-perpetuating feedback loop between economic weakness and low inflation. Higher inflation in normal times can fend off that unhappy outcome.There’s nothing special about the 2 percent target, other than the fact that it’s the conventional central bank target. In fact, it is quite likely to prove insufficient.
I must warn that a relative calm in markets may be challenged in the future as the Fed reduces accommo- dation.The sharp rise in interest rates last year is a reminder that “uncertainty or misunderstanding about the contours of the exit has the potential to be problematic.
Investors/ People would wonder if central banks would again change their inflation target. If they change it to 4 percent, why won’t they move it to 5 or 6 percent?The current 2 percent target is defensible because the banks can say it’s the “moral equivalent of zero.”
MONEY PRINTING AND STOCK MARKET BEHAVIOUR
Just look at this chart that follows the rise in the stock market right along with Fed money-printing stimulus, from the bottom of the market in 2009 to the beginning of Fed tapering in early 2014. Fed stimulus is marked by QE (quantitative easing) on the chart:
If you analyse the chart, you can review that the stock market has been artificially inflated by The Fed pumping trillions of tax payers’dollars into the banking system and the financial markets.But there is no CONFIDENCE in the system according toAishah Daud, Public Gold dealer based in Labuan, Malaysia.According to CNN Money’s latest polls survey, 61% believe it will be at least three years before the economy fully recovers from the 2008-09 financial crisis.And some see the situation as more dire: 16% believe the economy will never completely recover.
While official statistics say that the Great Recession ended in June 2009, 27%ofAmericans think the downturn is continuing and that conditions are worsening. Few economists view that the economy would rebound fully in two to three years. However, the labor participation rate stayed at 62.8%, matching a 36-year low.
We’re seeing the continuation of solid payrolls gains, which is an accom- plishment for the economy,” accord- ing to Laura Rosner, U.S. economist at BNPParibas. She added. “We’re slowly moving in the direction of stronger earnings growth, which is really what we need to see for the recovery to continue.” Home values and stock prices pushedAmericans’ wealth to a record high — but it might not fire up a sluggish recovery, economists say.As has been the case during the past few years, the gains in household wealth were driven by appreciation in real estate and financial asset prices.
But Michael Feroli, an economist at J.P. Morgan Chase, says rising stock markets and rebounding home prices aren’t pumping up the economy the way they used to — because the gains are going to rich people who tend to save. In my humble opinion, one of the major problems with the economic recovery in the USA and for most people,is that it doesn’t While we may hear reports of rising home prices, decreasing unemploy- ment and rising wages, a closer examination reveals that most of the benefits of the recovery goes to the highest income earners, leaving most Americans no better off.
In housing, for example, the sales of the most expensive homes were up 21.1% throughApril of this year, while they’ve fallen 7.6% for the rest of the market.That follows a gain of 35.7% in 2013 for the top 1% and just 10.1% for less-expensive homes.”
FINAL THOUGHTS ON THE US ECONOMY: SUB-PAR GROWTH
No wonder a CBS News/NewYork Times poll showed that 69% of Americans believe the economy is in bad shape, and 66% believe it isn’t getting any better.
I often say that the recovery is fake, and it is. But more importantly, even the fake recovery doesn’t extend to most of the economy, because it is only focused on pumping up the asset bubbles, particularly in the stock market.
The same is true of wages.The Bureau of Labor Statistics reported wages rising 1.9% inApril, but the increases are going disproportion- ately to higher earners, with average earners more likely to have lower wages than higher wages. What’s worse, the education required to earn those wages in the first place is becoming more expensive: Between 2005 and 2012 student loans more than doubled in real terms.
This is just another example of how unsustainable the recovery is. Even with all the firepower the federal government is putting into it, it’s doing very little to jumpstart the real economy.
Total U.S. household debt was about 108% of disposable income in the first quarter, down from a peak burden of about 135% in 2007.As consumers go into deleveraging their financial position, it won’t create any momentum in the growth. US economy might be heading for sub-par growth as it enters into recession soon which is bad for the global economy.According to Johns Hopkins University economist Laurence Ball contends that the Great Recession, which ran from 2007 to 2009 in the United States, is still affecting economies around the world, limiting their growth potential. Recent recessions have had dire effects on economies’ productive capacity. Countries with the deepest recessions have also experienced the greatest long-term damage.