US Fed Capitulates To World Pressure,
Welcome To The Next Financial Crisis
By IPM Group
IPM Group: The Fed not only failed to raise short term interest rates, considering its own publicly quoted mandate to normalise monetary policy, but also clearly indicated that higher rates are not possible until 2016 at the earliest, unless of course the economy turns down further ! (More QE and NIRP ?)
In fact I believe Thursday's Fed announcement marks an important inflection point with respect to market confidence in Central banking itself and of course the Fed themselves.
As Paul Brodsky recently stated:
In the current monetary regime it (the Fed) exists to create and maintain animal spirits with a secular policy centered on ever-expanding credit, but it is very aware that admitting it’s centrality would defeat its purpose.
The implication for investors in the US and everywhere else is, to paraphrase the famous line credited to President Nixon after the 1971 USD/gold default, we are all Fed watchers now. Regardless of focus, there has never been a better time to include macroeconomic analysis in one’s investment process.
The financial system is now facing a crisis of confidence not only with the monetary authorities themselves but the explosion in debt-loads across all spectrums (sovereign, personal, banking leverage) which reverberates into confidence of the fiat currencies themselves.
This may sound alarmist, but the evidence is clear, irrevocable and irrefutable, it really is only a matter of time now.
It is fundamental to Credit Bubble Theory ('Austrian' analysis) that the scope of each new Bubble must be larger than the last.
The US Fed are extremely aware we face a world pension fund crisis (amongst many other black swans or wobbling domino pieces) due to ZIRP (Zero Interest Rate Policy) and this extreme emergency policy which was promised to be unwound in due course as far back as 2009 has now just been confirmed - that’s impossible! - This is not a sign of confidence or durability.
An Ultra-Dovish Fed has actually exacerbated market uncertainty.
Martin Amstrong updated:
Fed Makes Same Mistake as It Did in 1927
The Federal Reserve yielded to international pressure, making the very same mistake that it made during 1927. Back then, there was a secret meeting and the Fed agreed to lower U.S. rates to try to help Europe to deflect capital inflows back to Europe. The exact opposite unfolded in the aftermath when even more money abandoned Europe and flowed directly into the U.S. share market.
In 1927, the Fed lowered U.S. rates in the middle of an economic debt crisis, which is the same path taken today. It is very curious how history repeats. We have just witnessed the Fed yield to international pressure once again. In doing so, they are condemning the elderly and U.S. pension funds to financial doom by setting in motion the next financial crisis.
We are walking into another public bailout of Fannie and Freddie GSE's (Government Sponsored Enterprises) and also the USA debt ceiling debate starts at the end of this month, September 2015.
Several Fed members and government officials have insisted GSE's should be included in the country's overall debt load taking it close to approximately 25 Trillion not including un-funded liabilites.
Must Watch Video : To understand the truly precarious (extreme leverage) nature of US Fed's balance sheet and the destruction of the middle class, you must watch this video.
Forget the rhetoric of the first few sentences.....
As zerohedge wrote yesterday ...
The implications from all of this are that the world will now plunge further into the monetary Twilight Zone. That is, with the Fed on hold, the ECB may be forced to cut further, which, as we discussed on Thursday evening, means the Riksbank, and then the SNB will need to follow suit, diving further into NIRP (Negative Interest rate Policy) as everyone scrambles to ensure that a foreign central bank's double-down-dovishness doesn't jeopardize their own domestic inflation targets.
Needless to say, the takeaway here is that the emperors (all of them) have no clothes and this is a never ending race to the NIRP bottom. For those interested in a preview of what comes next, see here
Friday 18th September price action only confirmed that for me:
Japan’s Nikkei dropped 2% Friday, and Germany’s DAX sank 3.1%. Crude was hammered 4.2% Friday, with commodities indices down about 2%. Notably, the Brazilian real was trading at 3.83 (to the dollar) prior to the Fed announcement, before sinking 3% to a multi-year low by Friday’s close. Reminiscent of recent market troubles, financial stocks led U.S. equities lower on Friday. Financials badly underperformed for the week, with Banks down 2.7% and the Securities Broker/Dealers sinking 2.6%.
US$ index the DXY rallied 1.3% on Friday.
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