{"id":77160,"date":"2015-08-20T12:19:18","date_gmt":"2015-08-20T16:19:18","guid":{"rendered":"http:\/\/countingpips.com\/?p=77160"},"modified":"2015-08-20T12:19:18","modified_gmt":"2015-08-20T16:19:18","slug":"the-global-economys-health-is-not-that-complicated","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2015\/08\/the-global-economys-health-is-not-that-complicated\/","title":{"rendered":"The Global Economy\u2019s Health Is Not That Complicated"},"content":{"rendered":"
August 20, 2015<\/div>
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By Chris Vermeulen – www.TheGoldAndOilGuy.com<\/a><\/p>\n

The Federal Reserve Bank has printed trillions of dollars to monetize US government debt just to keep the government afloat.\u00a0 Any significant rise in interest rates will\u00a0probably\u00a0decimate US government finances, the fragile housing market and in the bond market it will cause a financial catastrophe through interest rate derivatives.<\/p>\n

This is a solid reason why the\u00a0Fed will not raise any rates in any foreseeable future.<\/p>\n

The power to create money out of thin air is great!\u00a0 Should we give it to politicians and secretive central bankers? Will this\u00a0power be abused? Will those in charge yield to the temptation for \u201clegalized counterfeiting?\u201d\u00a0 Apparently the answer is YES.<\/p>\n

All that the Federal Reserve has done was\u00a0to inflate equity markets. They never solved any of the original financial\u00a0problems that lead to creating \u201cThe Credit Bubble of 2007\u2033.\u00a0 There was as\u00a0well no financial\u00a0resolution by our elected political officials to resolve this serious problem so that it would never occur again in the near future.\u00a0\u00a0 This process\u00a0called \u201cQuantitative Easing\u201d\u00a0created a shift of a tremendous amount of wealth from the middle class and the\u00a0poor to the rich.<\/p>\n

Inflated 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\u00a0help in creating new jobs and increase capital expenditures in their businesses.<\/p>\n

The problem with this philosophy is that it never filtered down\u00a0from the Billionaires into real\u00a0economic growth within our economy. Instead, rather\u00a0than experience expansion, we have been experiencing contraction which is resulting into an economic\u00a0deflationary depression that will appear evident to all by the end of this year.<\/p>\n

The top 1% of Americans hold 35% of the nation\u2019s wealth. This inequality has continued\u00a0to grow exponentially.<\/p>\n

There are\u00a0several\u00a0reason\u00a0that 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. \u00a0China is resorting to its alternatives to\u00a0hold\u00a0its 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. \u00a0There is no Inflation in developed countries.\u00a0 The world is entering a deflationary slump. \u00a0Why would the Fed ever even think about raising interest rates???<\/p>\n

The 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,\u00a0so the tin can will be kicked down the road for quite some time still.<\/p>\n

The 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\u00a0world\u2019s\u00a0highest. 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. \u00a0 This is a major factor why the Federal Reserve will continue pumping liquidity in the financial system.<\/p>\n

I 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!<\/p>\n

In short, there is no reason to believe that core inflation will rise to the 2% target\u00a0any time\u00a0soon and raising interest rates at the moment would jeopardize the US\u2019s fragile recovery.<\/p>\n

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CPI Continues To Decline
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The FOMC members gave the following reasons for caution:<\/p>\n