Rabobank: “The Fed Is In A Fantastic Position Where The More It Fails, The More It Is Needed”
By Michael Every of Rabobank
The Fed’s Powell made it clear yesterday: “Now is not the time to be talking about exit. I think that another lesson of the global financial crisis is be careful, not to exit too early.” Folks, that is the *only* lesson the Establishment has learned from the GFC: like it is always “more cowbell”, it is always more central bank regardless of the song being played.
- Inflation? More central bank: 2% CPI here we come one day, honest.
- Inequality? More central bank (in more ways than one, ironically).
- Climate change? More central bank: 2 degrees Celsius is another target now.
Of course, the fantastic position they find themselves in is that the more they fail, the more they are then needed. Recall my first Daily of 2021 talking about elite failure upwards? Case in point. But keeping things simple, the fact that US initial jobless claims spiked all the way back up to 965K(!) underlines that the idea of any central bank actually tapering soon is insane.
Meanwhile, here comes fiscal stimulus – perhaps. President-Elect Biden has proposed an initial USD1.9 trillion package. Yet it is comprised of several elements that have already been rejected, even by at least one Democratic senator, or which do not have the numbers to pass the Senate without Republican support. (This in the bitterest of political atmospheres: yesterday there were calls for those prosecuted for 6 January offenses to be “sent to Gitmo”; and then for the Republican party to undergo “de-Baathification” as in occupied Iraq, a process which guaranteed that country would splinter. Meanwhile, an Axios poll shows two thirds of Republicans still back Trump – and 79% of all voters polled also think the US is “falling apart”.)
The proposed packaged includes: a top-up of USD1,400 to make the previous USD600 cheques the equivalent of USD2,000; USD400 per week in supplementary unemployment benefits through to September 2021; USD350bn for direct aid to states; more spending for health and education; and a hike in the minimum wage to USD15 an hour, which will no doubt go down a storm with small businesses already being pushed to the wall, and where confidence showed a big drop last month according to the NFIB. To reiterate, some of this will need 60 votes in the Senate for procedural reasons, when the Democrats only have 50 and VP Harris as the deciding vote.
Nonetheless, the government needs to spend more – because otherwise what are the Fed going to keep buying? (And they ARE going to keep buying.) The US 10-year yield reaction has been mixed: we are currently around 1.11%, but there is no sign of a further surge on the back of the Biden stimulus news.
Anyway, back to more central bank, of course. US authorities are investigating several Bitcoin donations made to right-wing figures ahead of the 6 January riot. Wasn’t crypto supposed to be immune to such oversight? It seems the kryptonite of state regulation is always there when the politicians want it to be. The ECB’s Lagarde also put the boot in when stating Bitcoin is involved in “funny business” and “totally reprehensible money-laundering activities”; and “deplorable” ones?
This was always inevitable – you don’t prance around shouting how you have set up your own alternative monetary system and are the future, and then see the old guard with the guns and the jails say “Well, you beat me fair and square, Junior.” These are the people who are going to defeat deflation and inequality and climate change you are dealing with, after all!
It is clear major central banks want to develop their own digital currencies, which are a logical next step in our journey towards fiscal and monetary policy fusion,…and to the associated micromanagement that will come with it. ‘What the Hayek!’, cry those who get the real implications of this, while Wall Street just drools over the word ‘crypto’ any time it sees it without understanding any of this at all. It’s not a surprise Wall Street does so as anything that shows an exponential price increase would get their interest – and I do mean anything. Yet even good ol’, dull ol’ pension funds had been starting to consider it too…just before Lagarde pointed out that it is criminal by association.
Naturally, in today’s ‘market’ – brought to us courtesy of central banks – Bitcoin has reacted to the idea of being regulated away by shooting up again. Oh, the irony.
Meanwhile, out there in the real world the departing Trump administration continues to lay down landmines. It has just added China’s plane-maker Comac and mobile phone producer Xiaomi to a blacklist of alleged Chinese military firms, forcing US divestment of their stock; the oil giant CNOOC was also recently added.
And in a sign of how the world is changing, Mexican President Obrador is vowing to lead an international coalition to combat censorship by US social media companies. He intends to raise this at the next G20, which should make for an interesting US-Mexico dynamic. (And note that Obrador claimed to have actually won the 2006 Mexican presidential election that was allegedly rigged against him.)
And in a sign of how the world isn’t changing, Aussie home loans were up 5.6% m/m when only 1.2% was expected. As someone joked a few decades ago, after a nuclear holocaust the only things left would be cockroaches and Cher. I would add cowbells and Australian property bulls.
Fri, 01/15/2021 – 09:29