Tag Archives: Central banks

President Donald Trump is nearing a decision on whom to pick to lead the Federal Reserve

Fed Chair Janet Yellen`s job is coming to an end. She took over the job from Ben Bernanke who started to «print» money. Four years is over and President Donald Trump have a few but strong candidates on his table.

President Donald Trump had a meeting with Standford University economist John Taylor and according to a White House official, Mr Trump is nearing a decision on whom to pick to lead the Federal Reserve.

 

 

John Taylor is one of the candidates and Janet Yellen is the other one. Other candidates are Fed governor Kevin Warsh who is on Trumps shortlist. Current governor Jerome Powell and Trumps economic adviser Gary Cohn is also on the list.

Mr Trump has scheduled a meeting with Federal Reserve Chairwoman Janet Yellen on Thursday.

Ms Yellen`s four-year term as chairwoman expires on February next year and Mr Trump will meet her to discuss the possibility of nominating her for a second term as central-bank chief. Mr Trump is considering offering Yellen the chance to stay in the job, but will announce his nominee before leaving for a trip to Asia next month on November 3.

John Taylor said he agree with the Fed`s strategy to remove economic stimulus, and the Fed policy rate is now set at 1 percent to 1,25 percent. What the right thing to do about the rate is a matter of debate among economists, also among Taylor and his camp.

John Taylor is a Ph.D economist with a strong expertise in monetary policy and institutional leadership which is key attributes for the Fed Chair, and this is probably why Taylor is one of the biggest favorite for Mr Trump.

Donald Trump is planning to cut the taxes and monetary policy is therefore critical and important.

Former Fed Chair Ben Bernanke started the QE program after the financial crisis in 2008, and Fed governor Warsh was against further monetary stimulus in 2010 with unemployment above 9 percent and inflation decelerating.

Ben Bernanke is an expert on the stock market crash in 1929, and called Warch`s political and markets savvy «invaluable,» according to Bloomberg.

Central banks are often independent from other policy makers. This is the case with the Federal Reserve and Congress, reflecting the separation of monetary policy from fiscal policy and the latter refers to taxes and government borrowing and spending.

The Federal Reserve has what is commonly referred to as a «dual mandate»:

  • to achieve maximum employment (around 5 percent unemployment), and
  • stable prices (2-3 percent inflation).

In addition, it aims to keep long-term interest rates relatively low, and since 2009 has served as a bank regulator. Its core role is to be the lender of last resort, providing banks with liquidity in order to prevent the bank failure and panics.

The central bank of the United States is the Federal Reserve System, which Congress established with the 1913 Federal Reserve Act.

Central banks are inherently non-market-based or even anticompetitive institutions. Many central banks, including the Fed, are not government agencies, and so are often touted as being politically independent.

Monetary policy consists of the actions of a central bank, currency board or other regulatory committee that determine the size and rate of growth of the money supply, which in turn affects interest rates.

There are two types of monetary policy; expansionary and contractionary.

Expansionary monetary policy increases the money supply in order to lower unemployment, boost private-sector borrowing and consumer spending, and stimulate economic growth.

Contractionary monetary policy slows the rate of growth in the money supply or outright decreases the money supply in order to control inflation, while sometimes necessary, contractionary monetary policy can slow economic growth, increase unemployment and depress borrowing and spending by consumers and businesses.

An example would be the Fedral Reserves intervention in the early 1980s: in order to curb inflation of nearly 15 percent , the Fed raised its benchmark interest rate to 20 percent.

This hike resulted in a recession, but did keep spiraling inflation in check.

Mr Trump is planning to cut taxes and build more and better highways, and this is fiscal policy, which is trying to control inflation, stabilize business cycles and to improve unemployment rate. Sooner or later, we all know that the recession will come.

The tools will then be fiscal policy and the government will start to lower tax rates to try to fuel economic growth. If people are paying less in taxes, they have more money to spend or invest, and increased consumer spending or investment could improve economic growth.

On the other side; too much spending could increase inflation.

 

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Shiny bull. The author has made every effort to ensure accuracy of information provided; however, neither Shiny bull nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Shiny bull and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

 

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Filed under Politics, Uncategorized

The balance sheet assets of the six major central banks is up about 240%

All the worlds central banks are printing money like never before, and this is for the first time in history. The balance sheet assets of the six major central banks have just hit a new all-time record high of $17,3 trillion. Thats up from $4,987 trillion in May 2006.

People`s Bank of China (PBOC) has the largest balance sheet with total assets of $5,0 trillion, followed by the Federal Reserve with $4,4 trillion.

 

 

balancesheet

 

The SNB is at the bottom of the chart above, but it has the largest balance sheet as a percentage of GDP, with it currently up to 88,4% of GDP vs. 20% of GDP in May 2006.

The BoJ`s balance sheet is equal to 70% of GDP vs. 25% of GDP in May 2006.

The PBOC`s balance sheet is equal to 53% of GDP vs. 56% of GDP in May 2006

The Fed`s balance sheet is equal to 25% of GDP vs 6% of GDP in May 2006

The ECB`s balance sheet is equal to 25% of GDP vs. 13% of GDP in May 2006

The BoE`s balance sheet is equal to 22% of GDP vs. 6% of GDP in May 2006

The total assets of the world`s six major central banks is equal to 36% of their combined GDP, a new all-time record high vs. Only 14% of their combined GDP in May 2006, and well above the nine median of 26%!

Trumps goal is massive growth, and IMF in January raised its economic growth forecasts to 2,3% in 2017 and 2,5% in 2018, thanks to Donald Trumps plans to cut taxes and boost infrastructure spending. The World Bank will follow IMF with similar forecasts.

Trump`s bold plan is to create 25 million new American jobs in the next decade, which means it will only take 2% annual growth of the workforce to hit that target. Data shows us that 25 million jobs have never been created in a 10 year timeframe.

A 2% growth rate over 10 year will generate 25 million jobs, which means if the economic growth rate hits 2,5% it would take about 8 years. If the growth rate goes up to 3% per year it will take about 6 years. If the rate goes higher, Trump can reach his goal during his first period as a President.

I do not agree with Trump`s immigrant policy, but there is a drawback here; If Trump want to reach his goal, he need immigrants, because the number of people who are working dropped 3,7% over the past 10 years, and some of the reasons for that is the baby boomers demographic shift.

Janet Yellen also said she consider to hike the rates because the economy is improving. The Fed want to proceed with «normalizing» monetary policy, which means they want to have room to ease in case of a future shock.

President Donald Trump can help them to solve their fiscal policy by cutting tax rates and spend more money on infrastructure. At the same time, he need to keep the lid on federal spending. Will Donald Trump succeed? Betting against him have so far been a bad decision.

 

trump100_b

 

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Shiny bull. The author has made every effort to ensure accuracy of information provided; however, neither Shiny bull nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Shiny bull and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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Filed under Politics, Quantitative Easing

Twitter up 76%

The first day of trading for Twitter (TWTR) yesterday was not a bad day for Twitter fans. As I predicted yesterday, the stock skyrocketed, and reached as high as $50,09, before closing the wild and crazy session at $44,90.

That`s not bad considering the IPO share price of $26 a share. Many people will follow the stock for the next trading days, because the stock price is based on the earnings from the future. This reminds me of the tech bubble from the 90`s.

Draghi cut the interest rate yesterday, and that is good for the financial system. But, It tells us that it is something in Europe that is terribly wrong. When the interest rate is low, you know that the economy is sick. It really seems like Europe is on the edge to collapse.

The banking system in the U.S is leveraged by 13 to 1, and in Europe the banking system is leveraged by twice; 26 to 1. Taken as a whole, European financial institutions have more debt than Europes entire GDP.

To put that in perspective: Lehman bros was leveraged by 30 to 1 when it collapsed. You only need a 4% drop to wipe out all capital. All the central banks are printing money at the same time for the first time in our history.

The central banks can do two things:

  1. Monetize everything (hyperinflation)

  2. Allow the default and collapse to happen (mega deflation)

It they go for #1, Germany will probably leave the Euro, because they have a bad experience with Weimar and will not tolerate aggressive monetization. If the Fed push the button and print more money, the dollar will collapse, inflations will skyrocket as well as inflation rates and we will enter a dark period in the world and the capital markets.

Europe as a whole is so big that if it collapse, it will affect the rest of the world as it is China`s largest trade partner. Accounts for 21% of U.S exports and the single largest economy in the world. That`s why Draghi want`s much more money into the banking system.

What we are about to see now is that Europe is doing the same mistakes that Japan did in the early 90`s. In Japan, the policy makers failed to beef up banks capital cushions and to make them clean up their balance sheets.

To boost the economy growth they needed to undetake structural reforms but they failed. The Japan ecperience, is currently happening in the U.S and Europe right now, and Europe is indeed heading towards a lost decade.

Europe has failed to recapitalize its banking system. U.S. did a much better job recapitalizing its banking system. They started with the original stress test conducted by the Fed in 2009 which was more effective than the European version, and are now free from problems. Germany appears to be an exception to the rest of Europe, because it undertook structural reforms before the crisis hit.

Important news today: Unemployment Numbers at 8:30am, Preliminary UoM Consumer Sentiment at 9:55am, Bernanke Speaks at 3:30pm.

twitter_newbird_boxed_blueonwhite-11

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Shiny bull. The author has made every effort to ensure accuracy of information provided; however, neither Shiny bull nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Shiny bull and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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Filed under Stock market, Stocks