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A 3 minute synopsis of a recent video interview with Jim Rickards, author of Currency Wars and the upcoming Death of the Dollar, Senior Managing Director at Tangent Capital, by Amanda Lang and Kevin O’Leary from CBC News – Lang & O’Leary Exchange
FED Tapers a Little Bit
Will the FED Ever Raise Interest Rates
Economy is Not Getting Better
CBC News – The Lang & O’Leary Exchange
Amanda Lang and Kevin O’Leary
Interview with Jim Rickards
December 18, 2013
FED TAPERS A LITTLE BIT
The economy is still fundamentally weak. If the economy was stronger, in line with the FED’s expectations, they would have just tapered a little bit and left it at that.
But that’s not what they did.
They tapered but they also gave a very dovish forward guidance forecast. That 6 1/2% unemployment threshhold we were talking about (and it was always a threshhold and not a trigger), forget about that, we’ll go way past that. It might be 6% and it might be 5 1/2%.
By implication the same thing is true with the inflation threshhold. That 2% might now be 2 1/2% or 3%. Jim has heard Charles Evans of the Chicago FED talking about 3 1/2%.
Zero interest rate policy, quantitative easing, Operation Twist, currency wars, forward guidance – these are not goals.
These are tools.
So what is the goal? The goal is inflation.
The FED haven’t been getting it and they’ve been trying this for five years. It hasn’t come yet but they’re expecting it.
What they’re saying to the market is that we’re going to get inflation.
The stock market likes this. What it says to the stock market is that we’re going to get easy money as far as the eye can see.
WILL THE FED EVER RAISE RATES
We may never hear them say they are raising rates.
With tapering, even at $10 billion per month, it will take 8 months to get out. They will print $400 billion more and get their balance sheet to $4.4 trillion when they’re done. But there’s another phase between the end of quantitative easing and the beginning of raising rates which is they’re still buying bonds to keep the balance sheet where it is.
Remember, stuff matures all the time, and right now when it matures they buy new ones to replace it. That doesn’t increase the balance sheet but it maintains the balance sheet.
They could go through a phase where when it matures they let it run off and let it go down a bit without ever raising rates.
Jim doesn’t think we’ll see rates raise until maybe early 2017 at the earliest, and maybe never if they don’t actually get the inflation they’re looking for.
ECONOMY NOT GETTING BETTER
The economy is not getting better. We had a pop in the third quarter but that was mostly inventory accumulation. A lot of the unemployment decline is because of the drop in labour force participation. Those are not healthy statistics.
We have 50 million on food stamps, 26 million unemployed or underemployed, 11 million on disability, and that number is going up.
The fundamentals of the economy are not good.
Jim believes that is what the FED said today. If the fundamentals were good they would have just tapered and left it alone.
That’s not what they did. They tapered and then they gave a very dovish forward guidance.
What they are really saying is that QE does not produce inflation.
QE is a tool and not a goal. The goal is inflation.
The FED came to the conclusion after five years and $4 trillion dollars that QE does not produce inflation, so now they’re going to try other things.
They’ve moved the goal post from 6 1/2% unemployment to whatever, they didn’t even say where.
They say that forward guidance is data dependent. That’s an oxymoron. If we don’t know what the data is and forward guidance is data dependent then we don’t know what the forward guidance is either.
Today was a great illustration of that fact that the FED is just making it up as they go along. They really don’t know what they’re doing.
Another Week on Wall Street
words and music Elaine Diane Taylor
© 2013 Intelligentsia Media Inc. All rights reserved.
from the album Coins and Crowns available on iTunes