\nThe Global Economy\u2019s Health Is Not That Complicated
\nThe Federal Reserve Bank has printed trillions of dollars to monetize US government debt just to keep the government afloat. Any significant rise in interest rates will probably decimate US government finances, the fragile housing market and in the bond market it will cause a financial catastrophe through interest rate derivatives.
\nThis is a solid reason why the Fed will not raise any rates in any foreseeable future.
\nThe power to create money out of thin air is great! Should we give it to politicians and secretive central bankers? Will this power be abused? Will those in charge yield to the temptation for \u201clegalized counterfeiting?\u201d Apparently the answer is YES.
\nAll that the Federal Reserve has done was to inflate equity markets. They never solved any of the original financial problems that lead to creating \u201cThe Credit Bubble of 2007?. There was as well no financial resolution by our elected political officials to resolve this serious problem so that it would never occur again in the near future. This process called \u201cQuantitative Easing\u201d created a shift of a tremendous amount of wealth from the middle class and the poor to the rich.
\nInflated stock prices, usually held by the wealthy, created a clear \u201credistribution of wealth\u201d which will be paid for by future generations to come. The concept by the Fed was that centralizing the wealth would help in creating new jobs and increase capital expenditures in their businesses.
\nThe problem with this philosophy is that it never filtered down from the Billionaires into real economic growth within our economy. Instead, rather than experience expansion, we have been experiencing contraction which is resulting into an economic deflationary depression that will appear evident to all by the end of this year.
\nThe top 1% of Americans hold 35% of the nation\u2019s wealth. This inequality has continued to grow exponentially.
\nThere are several reason that I can refer to why the Fed will NOT raise rates anytime in the near future. There are interest rate cuts and devaluations going on all around the world at the moment. Japan and the Eurozone are both implementing Quantitative Easing. China is resorting to its alternatives to hold its financial system together and stave off a hard landing. Emerging market economies are being hammered by commodity price falls, while oil producers are being similarly hit by oil price falls. There is no Inflation in developed countries. The world is entering a deflationary slump. Why would the Fed ever even think about raising interest rates???
\nThe unwinding of QE will have many negative effects in a market that is already short of liquidity. So, the unwinding that must be delayed for quite some time will be welcomed by many. The unwinding of QE purchases and the normalization of bond prices would be extremely negative for the bond markets, so the tin can will be kicked down the road for quite some time still.
\nThe PBOC has significant room to lower required reserve ratios on banks to encourage lending. Even after a series of cuts, the RRR remains at 18.5 percent for major banks which is among the world\u2019s highest. Reducing the ratio by 10 percentage points would free up 13 trillion yuan ($2.1 trillion) of additional capacity for banks to lend. On the fiscal policy side, the country\u2019s $3.69 trillion of foreign-exchange reserves and relatively low national government debt levels mean it has the ammunition for fiscal stimulus. China is planning at least 1 trillion yuan ($161 billion) in long-term bonds to fund construction projects as the economy struggles. Most of the interest payments on the bonds will be subsidized by the central government. I believe that more projects of this type will be initiated in 2015. This is a major factor why the Federal Reserve will continue pumping liquidity in the financial system.
\nI believe that the FOMC minutes suggest that it is very far from a rate hike, the US economy is more likely to see QE4 first!
\nIn short, there is no reason to believe that core inflation will rise to the 2% target any time soon and raising interest rates at the moment would jeopardize the US\u2019s fragile recovery.
\nThe FOMC members gave the following reasons for caution:
\nWages aren\u2019t rising much
\nPrices aren\u2019t rising much either
\nThe dollar is strengthening
\nCommodity prices are falling
\nEconomic growth is still pretty weak
\nThe labor market isn\u2019t as strong as the unemployment figures suggest
\nIn Conclusion:
\nWe continue to see the US and global economies struggle. The writing is on the wall that a collapse in equities is drawing near, but we have yet to see the broad stock markets break down. When they do, there will be a lot of money made by taking advantage of falling prices, which is what my focus will be with my trading capital and ETF trade alert newsletter: www.TheGoldAndOilGuy.com \u2013 SPECIAL OFFER
\nChris Vermeulen
\nhttp:\/\/www.thetechnicaltraders.com\/partners\/idevaffiliate.php?id=382_143
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David Morgan is a precious metals aficionado armed with degrees in finance and economics as well as engineering, he created the Silver-Investor.com website and originated The Morgan Report, a monthly that covers economic news, overall financial health of the global economy, currency problems, and the key reasons for investing in precious metals.
\nAs publisher of The Morgan Report, he has appeared on CNBC, Fox Business, and BNN in Canada. He has been interviewed by The Wall Street Journal, Futures Magazine, The Gold Report and numerous other publications. If there is only one thing to teach you about this silver bull market it is this… 90% of the move comes in the last 10% of the time!<\/strong> Where will you be when this happens?<\/p><\/blockquote>\n
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