The Fed Remains On Course – To Trouble 

The Federal Reserve (Fed) is widely expected to continue to tighten its monetary policy this year. According to a latest Reuters Poll, the Fed is likely to start shrinking its US$4 trillion balance sheet in September and, moreover, raise further its key interest rate, which is currently standing in a range of 1.0 to 1.25 percent, in the fourth quarter this year.

According to mainstream economic wisdom, the time has come for the US economy to return to a more normal level of interest rates. Industrial output is expanding at a decent clip, official unemployment has declined markedly, and prices in the stock and housing market show a sustained upward drift. Considering these circumstances, the US economy can now shoulder a tighter monetary policy, it is said.

It should be understood, however, that there will be side-effects, even unintended consequences, if and when the Fed hikes interest rates further. Most importantly, the Fed doesn’t know where the “neutral interest rate” is. If it does too much, the economy will collapse. If it does not do enough, it will only prolong the artificial boom, causing ongoing malinvestment and, ultimately, another crisis.

Admittedly, this is nothing new: The Fed has always been a cause of boom and bust. It sets into motion an artificial boom by issuing new fiat money through bank credit expansion. Such a boom, however, must sooner rather than later collapse and turn into a bust. It is, therefore, strongly advised to expect nothing good coming out of Fed interventions.

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Here’s the True Definition of a Recession — It’s Not About GDP

According to the National Bureau of Economic Research (NBER), the institution that dates the peaks and troughs of the business cycles,

A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. A recession begins just after the economy reaches a peak of activity and ends as the economy reaches its trough.1

In the view of the NBER dating committee, because a recession influences the economy broadly and is not confined to one sector, it makes sense to pay attention to a single best measure of aggregate economic activity, which is real GDP. The NBER dating committee views real GDP as the single best measure of aggregate economic activity.

We suspect that on the back of the NBER’s much more general definition, the financial press as a shortcut introduced the popular definition of a recession as two consecutive quarters of a decline in real GDP. Also, by following the two-quarters-decline-in-real-GDP rule, economists don’t need to wait for the final verdict of the NBER, which often can take many months after the recession has occurred.

Regardless of whether one adopts the broader definition of the NBER or the abbreviated version, these definitions are actually failing to do the job.

After all, the purpose of a definition is to establish the essence of the object of the investigation. Both the NBER and the popular definition do not provide an explanation of what a recession is all about. Instead they describe the various manifestations of a recession.

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Central Banking & Monetary Policy: Systemic Upheaval Looms

Are we on the verge of a new model of central banking?

Whither central banking? This question has fallen by the wayside in the fever-pitch Renaissance drama that is Donald Trump’s Washington. Pundits and legislators are more captivated by swirling allegations of Russian collusion and White House infighting than by the relatively mundane domain of monetary policy. But that doesn’t mean we should overlook the first signs of what could be a momentous change in the way we do central banking in the 21st century.

The typical model of central banking is that of independence. The central bank is given a mandate by the national — or supranational, in the case of the European Union — government. Politicians may nominate officials to the governing boards of the central banks, but nominees’ terms are long, so for the most part central banking remains a technocratic endeavor, largely insulated from the capriciousness of domestic politics. As former Fed vice chair Alan Blinder argued in the mid 1990s, monetary policy is a technical practice that requires specialists with long-term outlooks at the helm; achieving the desired goal requires patience and prudence far beyond that of politicians, who by design are incentivized to think and act in the short term.

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Markets Worry Trump May Have To Use Obama’s Secret Debt Ceiling Plan

  • Obama in 2011 prepared contingency to prioritize repayments
  • Prioritization a ‘dangerous precedent,’ Citigroup says

Deep within the Treasury Department sits a once-secret plan written by the Obama administration that could lead to the first-ever default on U.S. debt. Bond traders are worried that Donald Trump’s Treasury secretary may have to use it.

The U.S. government will reach its statutory limit on borrowing some time in October, the Congressional Budget Office estimates. The Trump administration has asked Congress to raise the ceiling before then, but it is running into the same complications the Obama White House encountered: lawmakers, mostly Republicans, who want to use the debt limit as leverage for controversial policy changes.

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10 Secrets About America That Will Make You Wonder Where All The Freedom Went

It’s no secret the definition of ‘freedom’ in America has changed a great deal in recent decades. While 9/11 was a major turning point, setting in motion a slew of changes to the American mindset and to the legal framework which governs the contract between the State and the people, our natural rights have been under assault for generations.

Couple this with the dumbing down of the American citizenry, and ‘We the People’ simply no longer know or understand our rights. The fallout of this being we no longer protest or even notice when evermore egregious violations occur.

Where has all the freedom gone?

The following 10 secret truths about America are critical in understanding the state of the state today.

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Donald Trump’s Very Own Big, Fat, Ugly Bubble

The overwhelming source of what ails America economically is found in the Eccles Building. During the past three decades the Federal Reserve has fostered destructive financial mutations on Wall Street and Main Street.

Bubble Finance policies have fueled an egregious financial engineering by the C-suites of corporate America. This bubble has skyrocketed to the tune of $15 trillion of stock buybacks, debt-fueled mergers deals and buyouts of the last decade.

The Fed fostered a borrowing binge in the household sector after the 1980s. It eventually resulted in Peak Debt and $15 trillion in debilitating debts on the homes, cars, incomes and futures of what used to be middle class America.

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38 Incredible Facts About The Modern U.S. Dollar

We’ve previously showed you 31 Fascinating Facts About the Dollar’s Early History, which highlighted the history of U.S. currency before the 20th century. This was a very interesting period in which we looked at the money used by the first colonists, the extreme bust of the Continental currency, the era of privately-issued bank notes, and Congress’ emergency issuance of the fiat “greenback” during the Civil War.

However, as The Money Project – an ongoing collaboration between Visual Capitalist and Texas Precious Metals that seeks to use intuitive visualizations to explore the origins, nature, and use of money – notes, the modern era of the U.S. dollar is just as interesting. We have it starting in 1913, when the Federal Reserve Act was passed by Woodrow Wilson. Not only did it establish a new central bank, but it also gave the Fed the authority to issue the Federal Reserve Note, which is (for now) the dominant form of U.S. currency both domestically and abroad.

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