The Federal Reserve Is Not Currently Forecasting An Economic Collapse While Interest Rates, Unemployment Keep Rising, And Everyone Is Dumping U.S. Bonds
Six key takewaways from today’s Federal Reserve statement
While some read the FOMC statement in July as more “dovish” than expected… it appears the actual conversations from the minutes point in a more “Taper”-on direction (though clearly uncertainty remains high):
• A FEW ON FOMC URGED PATIENCE, OTHERS FAVORED QE TAPERING SOON
• FOMC MINUTES SHOW BROAD SUPPORT FOR BERNANKE TAPERING TIMELINE
• FOMC PARTICPANTS SAID SEQUESTRATION “CLOUDED THE OUTLOOK”
• FOMC PARTICIPANTS PREDICTED GDP TO PICK UP IN 2ND HALF 2013
• ALMOST ALL FOMC PARTICIPANTS BACKED “CONTINGENT OUTLOOK” FOR QE
• FOMC SAID JUNE PAYROLL REPORT SHOWED “CONTINUED SOLID GAINS”
The FED minutes were released and they said the following, ” “. So with nothing said everything is exactly as it was before. The taper is still on? Syrian rebels used chemical weapons while the UN was inspecting Syria and then blamed it on the Syrian government. Why would Russia and Syria invite the UN inspectors in and then use chemical weapons? Cyber threats continue all over the world and General Dempsey believes that starting a war would not be militarily decisive, but the war would then drag on for years and potentially lead to WWIII
Wells Fargo eliminates 2,300 mortgage jobs
Home-refinancing applications plunge 62% since May, mortgage bankers say
GALLUP: Unemployment Spikes to 8.9%… 18 month high
UNEMPLOYMENT RATE JUMPS FROM 7.7% TO 8.9% IN 30 DAYS
Read more at http://investmentwatchblog.com/are-we-on-the-brink-of-another-economic-disaster/#QC8jZfpsBJZUpgPE.99
The Fed Is Going Broke As 10 Yr Treasury Yields Keep Shooting Higher
Consider the following. The Fed has only $50 billion or so in capital. With the Fed now owning over 30% of the ten-year market, every time bonds drop and yields rise, the Fed will erase ALL of this capital. Indeed, Mark Hussman of Hussman Funds notes that even a 100 basis point increase in yields will wipe out the Fed’s capital six times over.
And therein lies the core problem: by expanding its balance sheet so dramatically, the Fed has in effect spread the financial crisis from a private banking level to a public/ sovereign level. Put another way, when the next Crisis hits, it will not be Wall Street banks that go bust but the Fed itself.
Anyone who believes the Fed can “exit” this position is delusional. The single biggest trade for the last four years has been frontrunning the Fed’s asset purchases. When the Fed reverses course and begins selling assets, everyone will dump Treasuries in anticipation.
Indeed, we are already witnessing this with foreign nations selling Treasuries in record amounts in June when the Fed first hinted at tapering its QE programs. Japan and China alone dumped $40 billion that month (of a total $66 billion sold by foreigners that month).
Presidential Meeting Signals Catastrophic Event: “There Is a Crisis Unfolding Somewhere in the Background”
Only with exponentially more debt, and exponentially more dollars to soak up in the end…
And this with a Fed that is basically out of Capital and loaded down with Toxic Assets.
It’s 1974 on Steroids…
Retweet from Jim Rickards
At which point we will print some more RT @maxkeiser @JamesGRickards Central Banks will continue to print until overwhelmed by social unrest