Let’s see…

…the yield curve inverted…

…the feds’ monthly deficit hit a new record…

…the trade deficit hit a new annual record…

…the Fed said the economy was weaker than expected…so it said it would lay off the rate increases…

…home sales are falling to new lows…with the sales/population ratio at a record low…

…and still, the stock market refuses to fall apart.

Standing up for half-wits

In the meantime — which could be months…or even years — we watch, we wait, and we wonder what the hell is going on.

But we think we’ve figured out something important…about why the feds’ stimulus measures don’t really stimulate…and why the low-interest/EZ-money course favoured by Trump, the Fed, the Deep State, and practically all the powers-that-be will lead to disaster.

Friday, The Donald said he would appoint Stephen Moore to the Fed.

Reuters:

‘President Donald Trump said on Friday he picked Stephen Moore, an economic commentator affiliated with a conservative think tank and a critic of the Federal Reserve’s interest rate hikes, for a seat on the US central bank’s Board of Governors.

‘In a Wall Street Journal article here last week, Moore and a co-author argued that the Fed’s rate hikes promoted deflation and described the central bank as the “last major obstacle” to the United States staying on a good path.’

Immediately, the right-thinking, left-leaning media fell over, indignant…calling Mr Moore an ‘idiot’ and a ‘laughingstock’ of the profession.

But here at the Diary, we stand up for him, just as we do for all half-wits.

Yes, he is less highly regarded as an academic economist than Fed members such as Clarida, Brainard, Bullard, and the rest. But he is no more idiotic!

[openx slug=inpost]

Take away the punch bowl

The idea of putting Mr Moore in at the Fed is to make sure it stays in line. The Fed today is by, for, and of the Deep State. The Donald doesn’t want it getting any ideas to the contrary.

Politicians always want low interest rates — the EZ money helps them get re-elected. Wall Street, too, always favours lower rates; they push up asset prices.

But until 30 years ago, when Alan Greenspan invented the so-called ‘Greenspan Put’ after the crash of 1987, the Fed didn’t always come through.

After all, Eisenhower era Fed Chief William McChesney Martin famously said his job was to ‘take away the punch bowl’ when the party started getting out of hand.

And that’s what the Fed did. Faced with 10% annual inflation, Paul Volcker put the fed funds rate up to 19% in 1980.

Even more recently, the Fed still had the lingering sense of duty, putting the key rate up over 6% before the dot-com crash of 2000…and over 5% before the mortgage crisis of 2008/2009.

But now, all trace of prudence is gone. The fed funds rate is only 2.4% (barely above inflation) and will no-doubt be there when the next crisis hits.

Stimulus guy

For the last 10 years, the Fed has provided funds at rates below zero, after inflation. Nobody even thought of putting the punch bowl away until the Fed started ‘normalising’ two years ago.

And then, it never did get around to it. It just promised to do it…and started clearing a place for it in the cupboard.

But then, when the party started to wind down last autumn, the Fed quickly reversed itself…saying it might not put the punch bowl away after all. And last week, it said, in effect, the punch bowl was there to stay.

So you see, there was no need for Mr Trump to pack the Fed with shills like Moore, anyway. The Fed never had any intention of really following through on its normalisation plan. Instead, it stood ready to dump more liquor in the punch bowl whenever the music dies down.

But the difference between the typical Fed guy and Moore, is that the existing Fed members go along with the EZ-money scam somewhat reluctantly and somewhat ashamedly.

Moore, on the other hand, is a believer. He thinks an economy really can be made to run faster and better by a bunch of old jackasses sitting around a mahogany table.

He’s a ‘stimulus’ guy. Tax cuts, bigger deficits, lower interest rates, and free money from the Fed — all are supposed to put people to work and boost GDP.

Is it true? Does it work? Tune in tomorrow…

Regards,

Bill Bonner