Did Yellen Push the Envelope Too Far? – Ep. 286

Did Yellen Push the Envelope Too Far? – Ep. 286

Yellen Putting On an Optimistic Front
Everybody is watching Janet Yellen this week; the Federal Reserve met and did not raise interest rates - no one expected them to raise interest rates. But Yellen did offer a more optimistic assessment on the economy than most people were expecting. In fact, she shrugged off all these hurricanes and did not mentioned all the money that will have to be borrowed to repair all the destroyed infrastructure.
No Rate Hike
She's not worried at all about the impact of the hurricanes on the economy, and based on how upbeat she is, the markets are convinced that we are going to get another rate hike between now and the end of the year. Most likely December - and I think the markets had already started to price out a December rate hike and now they are pricing it back in.
Shrinking The Balance Sheet
But what everybody was waiting for was the plan on quantitative tightening. They are afraid to use that language, but they're just talking about winding down their balance sheet. Janet Yellen did say that they would begin in October or November. They will not roll over $10 billion per month. Now, if they earn $15 billion in interest, they are still going to re-invest $5 billion. So it is possible that even though they are doing this "taper", that the balance sheet could still be getting bigger.
$10 Billion a Month Forever
If they stay at $10 billion a month it will take forever to actually shrink the balance sheet - which they won't do, because long before we get to forever, we're going to get to the next recession and then they will have to crank up the balance sheet.
Fed is in a Box
The Fed is in this box, they've boxed themselves in. They have kept rates so low for so long, they've allowed so much debt to accumulate it is impossible to allow interest rates to rise, but they can't admit that. So they have to pretend, they have to talk as if everything is going to be fine, they will be able to normalize rates, they will be able to shrink the balance sheet. None of this is possible, and it's only a matter of time before the market figures it out.
Bankrupt!
Just like Toys R Us - bankrupt overnight. It was just a matter of time before Toys R Us creditors realized they are insolvent. Then, Boom! Puerto Rico, already bankrupt, can't do anything to help itself now. It it were not for money coming to Puerto Rico from the United States, what would they do? They didn't save, they squandered their money, they ran up big debts - America has done the same thing and there is no bailout for America. Our Sponsors: * Check out Infinite Epigenetics: https://infiniteepigenetics.com/GOLD * Check out Justin Wine and use my code SCHIFF20 for a great deal: https://www.justinwine.com Privacy & Opt-Out: https://redcircle.com/privacy

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