Tuesday, September 01, 2015

FED And Media Are Out Of Sync

Oh no it's the end of the financial world! Not really. The financial markets are going through a rough patch because of the mountain of debt the world piled on in response to the 2008 crisis. Everything is not going into shutdown right now. Stop hyperventilating and filter out some of the crazier posts on Zero Hedge. The crisis of 2008 really started with the 2005 housing market top when the hot real estate markets ran out of marginal borrowers and the FED started to inch rates up, creating financial ripples that caused Bear Sterns to blow up in 2007. Wait a while for the real fireworks. A bigger issue is the FED cannot even get their media minions to report their moves right. The system is running into problems.

Last summer, I posted how Lee Adler is one of the financial writers I read to peek behind the curtain. In the financial blogging world, Lee Adler and his stable of writers are the closest to seeing the cathedral or polygon of power in America today. Lee has a great piece on the disconnect between the FED and the media. The FED has changed its focus and concern, but the media is not catching on nor reporting it. The FED cannot even use its flunkies, like go-to mouthpiece Jon Hilsenrath of the Wall Street Journal, to communicate to the right thinking people what the FED wants to do. This reveals the different motives to pieces of the polygon.

The FED opened their meeting minutes in July differently than prior months by focusing on raising rates and shrinking the balance sheet. This was a change from prior discussions and meetings. This would be important to report on, yet the media focused on the FED's take on the state of the economy. Raising rates and shrinking balance sheets will change the game that the current FIRE system has been operating under since the 2008 crisis reaction or band aid. Go back to the FED inching rates up graph in my first link. Look at what happened the last two times the FED has moved rates up after easy money policies. Note their pathetic step by step method, too. Crisis, recession and pain follow the rate increases because the marginal borrowers disappear as we do not have true economic growth that provides people wage growth to sustain consumption.

This would be important to put out to the public because the next crisis is coming, just a matter of when, and rising rates and shrinking balance sheets will herald it. Why is the media avoiding this discussion and focusing on the Fed's take on the economy? Lee Adler says it is because this is good copy. The media right now is in a pinch because with normal people feeling economic pain, 50 million Americans on food stamps and no nominal wage growth, no one is buying the recovery talk. Partisans will point to rising stock markets and lower unemployment rates (artificial and virtually useless measures now) as good work by Team Obama. A stock market collapse or even 20% drop hurts The Narrative. The media wants the goldilocks story to sell to the street.

The media also wants to avoid the discussion of looming economic pain because look outside your window. Political fracture is on all sides and all over the West. Blacks are attacking "white allies", forgetting they are 12% of the population and publicly calling for a race war in manifestos, and the media is suppressing it. A section of whites have said "screw it" and are embracing identity politics... and writing off liberal whites. Someone has finally said "deport", and found that a sizeable fraction of the American electorate likes it. Hell, even the open socialist, Sen. Sanders, darling of the white progressives, is anti-immigration. Even some Swedes are waking up that it's keep the social welfare system for us or keep letting in them. It is Weimar politics, even the NY Times admits it. We have not had our Weimar economic breakdown, and note that it took ten years between that and the Nazi takeover. The media needs to keep this off the front pages or even the back pages.

The media needs a materially comfortable population to keep the consumer machine going and democratic facade alive. If the West is fragmenting like this with Medicare facing insolvency in 2030 and Social Security reducing benefits automaticlaly in 2033, what happens when those numbers get 2020s dates? This will happen with the next recession because we have had crap for jobs and wage growth. When the money glue cannot keep the multicultural gollem together, what happens to these already strained racial and ethnic relations? Are white Millenials going to pull the plug on gramma in order to pay for Demarcus' 3rd kids' after school program and his SSI for "anxiety"? Are "on the fence", apolitical Boomers going to keep buying the progressive pupu platter, staying quiet and paying for some Buffalo Bill's reassignment surgeries to feel pretty when the system they paid into for decades cuts their benefits by 25%? No.

This also points out the problem of just about every bit of government interference in banking and the centralization that the creation of the FED fostered. Even after the Great Crash, the problem could have been handled specifically by the NY FED but was addressed by the FED. It would never have been possible had there been no FED, but big biz and the progs under Wilson wanted a FED. We created the FDIC and removed risk and secure management of a bank from a consumer's decision making process, therefore all they can compete on is rate, and we get a "race to zero" for the marginal borrower and customer. Banking becomes a centralized, government utility for the progs to play with, as long as their paymasters get their cut.

The FED wants one message out: change may be coming in policy, prepare for the possibility, look at what happened the last two times. The media does not want that message out, especially not in an election cycle. These are pieces of the same power structure, but they have different motives and concerns. The media wants to spin on the state of the economy and pitch all is well. "Liberal control is good. People say the game is rigged??? Bah, don't listen to that demagogue that we will compare to Hitler weekly. Even if it is rigged, it is a good game that provides you comfort and gives you steady bread. Isn't that enough?" The FED does not care about that message. It has a service to the TBTF banks, hedge funds, and investors that the casino will continue for their benefit. Liquidity will be provided for all your trading needs. Never make a deal with the progs and its polygon of power because eventually a piece of it will sacrifice you to continue its control of the system.


R. Wilbur said...

Did anybody ever decide if peak oil was real? Is that where oil volatility is coming from? Is shale still a financially unsustainable wrecking ball? Did the improvements in extraction technology alter this?

It's tough to flip between ZH, Kunstler, the Archdruid, Infowars, and Nrx and keep my general decline & fall scenarios straight.

Son of Brock Landers said...

Peak Oil is real but the PEAK OIL IS GONNA KILL US ALL IN 2 YEARS types are loons. Kunstler was pushing a scenario to build an audience to eventually get them to buy his fiction books (i.e. get paid to spout bullshit). His nonfiction book "The Long Emergency" waves away all scientific options to solving peak oil without any science of his own to back up his dismissals. I laughed at all the Peak Oil pansies who said Saudi Arabia had peaked when the Saudis kicked up production higher and higher after 2005.

I'm a believer in Peak Cheap Oil, where we will cycle between expensive oil, supply booms, then busts as it gets too expensive until we figure out how to fix the demand issue.

R. Wilbur said...

Alright, good -- so if we just subtract the "immediate collapse" panic, then all my sources of alternative news agree in a ratcheting decline punctuated with unpredictable highs and lows, with a major Fourth Turning period of activity concentrated in the late 2020's in conjunction with the anticipated SS and Medicaid haircuts, the general outline of which can be anticipated by alt-righters while the specifics will be completely obscured by a sclerotic, hostile, and senile Cathedral establishment combined with an ever-growing population of regular folks who understand something is wrong but can't distinguish signal from noise.

My 5-10 year plan of building the mini-farm, deepening community ties, getting swole, making babies, and investing in skills and hard assets should still work out well, then.

Unless Ebola, of course.

NZT said...

I'm trying to not set myself up for disappointment, but I have to admit it would be hugely cathartic to see a real bona fide market crash splatter all over Yellen's face after stocks' relentless up-and-to-the-left march for the last few years on the back of QE and ZIRP. Seeing establishment bureaucrats get hoist by their own petard (see also: shitlib college profs afraid their own students, the ongoing meltdown of Jeb and Hillary, Sanders getting steamrolled by BLM dindus, etc) is one of the most refined pleasures of alt right politics.

Guy said...

What do you think started this current spike in volatility? I've been reading financial news for the past 6 years or so, and I honestly can't think of any smoking gun to point to. It doesn't feel materially different than anytime since the last crash. Economic conditions never really improved much, and the recovery was always "just around the corner" (while on zero hedge the great market crash was about to happen any day now).

If I had to make a wager, I'd say the downturn in China is causing a commodity collapse, which is taking the highly levered energy companies and credit market with it. With the collapse of China, financials are seeing huge losses on their EM high yield gambling, and are all trying to exit EM at once. There's not enough liquidity for it, and it's causing huge panics throughout the financial market. On top of that, there's the slow collapse in the sub prime auto market, and the fed hinting at raising rates.

While it might not be the end of the world, I'm still adding to my shorts. I'll be holding on to them until the slow collapse shows signs of reversing, or the Fed announces the next round of QE. Whatever comes first. Long term, the idea of buying up farmland in middle America doesn't sound like such a bad idea anymore.

Anonymous said...

Peak oil is unrealized as of yet. Lots of hard oil to get to. But that just means squeezing the shrinking middle class some more.
Buying farmland in middle America is a mistake as the soils have barely been maintained and only GMO patented plants can thrive in it at modest yields.
The "go-go" small and middle farmer have ruined the market by over producing and killing the demand supply curve on the big 3 commodities.
Now they reap the forclosures and reposessions. The big conglomerate farms are just getting bigger at cheaper prices. So with that said our farming will stabilize. It just may take a another 5 to 10 years.
If we can keep SSI solvent long enough to get through the majority of boomers and readjust our legal system so as to control medical costs we can survive. But those are large Mountain ranges to cross and many will die or starve in the cold as we are forced to address those issues. 2020s will be very interesting to say the least. Only a large scale war will detract from those problems. Not these proxy wars the superpowers play with these days.

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