Late last year, with the U.S. economy experiencing
falling unemployment and seemingly low inflation, observers were
extremely confident that the Federal Reserve would move judiciously in
2015 to restore 'normal' interest rates sooner rather than later.
However, in light of the recent fall in both stocks and oil, that
conviction has softened considerably.
Many, such as the very influential Bill Gross, now believe that our current Zero Interest Rate Policy (ZIRP), which has been in place for six years, will remain in place throughout the year. While this likelihood is a disappointment to many, who would have preferred to see the economy move along without Fed-supplied training wheels, few really understand the pernicious effects these policies are inflicting on the economy the longer they are held in place. In short, ZIRP is slowly transforming the world economy into a dysfunctional basket case.
Many, such as the very influential Bill Gross, now believe that our current Zero Interest Rate Policy (ZIRP), which has been in place for six years, will remain in place throughout the year. While this likelihood is a disappointment to many, who would have preferred to see the economy move along without Fed-supplied training wheels, few really understand the pernicious effects these policies are inflicting on the economy the longer they are held in place. In short, ZIRP is slowly transforming the world economy into a dysfunctional basket case.
Historically,
it has been estimated that a 'normal' fair rate of return on short to
medium-term high quality debt is between 2 and 2.5 percent, net of
inflation. Recently, the Fed published year-on-year U.S. CPI inflation
for mid November 2014 at 1.3 percent. This would suggest normal
short-term rates at around 3.5 percent at present.
However,
using the government's methodology that was in place prior to 1990,
John Williams' Shadow Government Statistics (SGS) newsletter calculates
inflation to be currently some 5 percent. Using methods in place prior
to 1980, it is a staggering 9 percent. At that level, current interest
rates should be somewhere around 11.0%. Even if we estimate that real
inflation is currently 3%, then our "normal" rate of interest should be
around 5%. This is some 50 times the rate paid currently on most bank
deposits. This gap is distorting the economy in untold ways.
In
early December 2014, the U.S. Congress approved further Government
spending of some $1.1 trillion. This came just as the U.S. Treasury's
debt broke through a total of $18 trillion. It wasn't that many months
ago that the $17 trillion barrier was first breached.
Currently,
the U.S. Treasury can borrow for 10 years at around a rate of 2
percent. But if long term rates rose to 5 percent, which would be in
line with the historic range of "normal," the 3 percent difference
would cost the Treasury an additional $540 billion in annual interest
payments (based on the current $18 trillion in debt). This would
considerably undermine the government's fiscal position, and
necessitate an upheaval in federal budgeting.
The financial
repercussions of a tripling or quadrupling of interest rates truly are
horrific. They lead to a sense of foreboding that the Fed, aware
acutely that the U.S. Treasury simply cannot afford a return to normal
interest rates, will not restore normal rates unless forced to do so by
international bond or currency markets. It appears, therefore, likely
that ZIRP will continue for years to come. This feeling is underpinned
by a view that low interest rates are simply a benign stimulant that
fails to appreciate the actual harm they impose, particularly in the
fixed income markets.
Savings are the prime source of real
long-term investment. Today, savers are being crushed by the Fed's
manipulation of interest rates to below a real return. To find even
small real returns, investors have had to scour the financial landscape
for sources of yield. In doing so, they have ventured into risky
territory and have, for instance, flooded into the high yield market,
pushing junk yields to record low territory. The repercussions of
providing excess capital to risky businesses have yet to be
experienced, but the energy industry should provide us with a hint of
things to come. Over the last few years small and midsized energy firms
were able to borrow cheaply and lavishly to fund drilling projects,
thereby greatly increasing production. But in retrospect, these efforts
look like they helped create an oversupply of energy that has
depressed the price of crude and has exposed the energy sector to
long-term financial stress. Bankruptcies and creditor losses may be
inevitable.
Another concern of the Fed is that despite an
unprecedented increase in liquidity and part-time employment, real job
creation is still sluggish at best. Furthermore, the Manhattan
Institute's Power & Growth Initiative Report of February
2014notesthat the U.S. oil and gas boom has created some one million
jobs with a further ten million in associated occupations. The oil boom
has improved net employment and kept the economy out of recession. But
oil prices have fallen dramatically, threatening these economic
bonuses and high-yield bond defaults. It's hard to see what other
distortions and hidden pitfalls have been created by negative real
rates. The traps often become visible only after they have been sprung.
But with major economies such as the European Union, Japan
and Russia flirting with recession (and China slowing down
considerably), there is growing fear that normal interest rates would
be dangerous at present. This fear likely will encourage the maintenance
of ZIRP, possibly for years, with financial markets disconnected
increasingly from the real economy.
Therefore, investors may
continue to benefit for some time from the consistent boosting of
financial markets by central banks. However, the longer a major
correction or even a crash takes to develop, the more sudden, deep and
devastating it may be.
Enough...We've Had Enough...Part 1 of 3
By: Diane Sori
“Islam is as dangerous in a man as rabies in a dog.”
Sir Winston Churchill
And so they came to Paris...
One by one from all over France they gathered to stand strong and united as one against terrorism...against muslim islamic terrorism.
And they came...one and a half million French men, women, and children marching through the streets of Paris (3.7 million marched across all of France)...NOT for a funeral or memorial service per se, but for a quiet and respectful act of protest and show of solidarity against the out of control political ideology known as islam.
Even Mahmood Abbas...for Palestinian political expediency alone...and the King and Queen of Jordan...again to serve their own purposes...were there but most noticeably absent was American President Barack HUSSEIN Obama...the 'supposed' leader of the free world.
What a slap in the face and insult to NOT only the 17 murdered, but to the French people and to the other leaders of the, for now, still free world. Obama's NOT going sent a powerful message to the world of his renunciation of leadership in the 'War on Terror' and his condoning of, or in the very least his looking away from, on-going islamic terrorism. And know this snub will rightfully NOT be forgotten nor forgiven. (Article continues below video.)
And while on Sunday they marched 'over there' here in America...an America burdened with its own immigration problems...this administration continues to purge the word islam...continues to purge the word muslim...from major U.S. government and military documents...and does so in the name of political correctness for this most miserable of presidents dares NOT step on his brethren's toes. And so Barack HUSSEIN Obama willingly looks away to the reality of the horrors being done by those whose blood also courses through his veins.
What happened in France yesterday should be happening in DC and in cities all across America today...protests drawing hundreds of thousands if NOT millions...for only in numbers...in visual tangible numbers...can change for the better be initiated...and only in numbers can the pen and the phone be removed from the hand of a vile and dangerous man run amok.
And yet some NO matter this warning...NO matter this French military deployment ...NO matter the horrific events at Charlie Hebdo...many in the West still believe that we are NOT at war with islam but only at war with radical islam. And to that I say it's way passed time that people wake-up to the reality and accept as fact that we indeed are at war with islam...the one and only entity known as islam...and that we have been since a sunny day back in September of 2001.
So as we in the West continue to fight the on-going 'War on Terror,' remember that there is NO real strategy in place to win that war, and this alone has allowed the islamists the ability to grow stronger and bolder in the methodology they use to achieve their goal of establishing a worldwide caliphate ruled by sharia law. And we in the non-muslim world need to understand...to really understand and accept as truth...that when muslims say they will do 'something' to avenge what they perceive as the West's dishonoring of their prophet muhammed...and know that threats against we infidels are made on a daily basis...they will indeed do it. And know that the days of saying that NOT all muslims are terrorists is over for if you do NOT condemn you do indeed condone...and when was the last time you heard muslim voices uniting in loud and clear condemnation of acts of jihad...of act of terrorism.
“It’s inconceivable that the thinking that we hold most sacred should cause the entire umma [Islamic world] to be a source of anxiety, danger, killing and destruction for the rest of the world. Impossible!,” al-Sisi said.
And as the march itself drew down, Prime Minister Benjamin Netanyahu and French President Francois Hollande were welcomed with loud cheers as they entered the Grand Synagogue in Paris (the largest synagogue in all of France) for the official ceremony honoring “all the victims” slaughtered at the hand of islamic savages.“Israel will live, Israel will overcome” those gathered chanted for they know that the muslim world's hatred of Israel is at the bottom of this all. Calling out Netanyahu’s nickname “Bibi” time and again and bursting into loud applause as he announced that the four Jewish hostages murdered in the kosher grocery store would be laid to rest in Israel, Netanyahu expressed his appreciation to France for taking a strong stance against both anti-Semitism and terrorism all while recognizing the“renewed struggle against the Islamic terrorism that is threatening all of humanity.”
So now with a warning having been issued I hope the world, and especially America, takes notice that events like what happened in Paris will happen again and again, and that 'We the People' truly understand that the world's great oceans will NO long insulate us from events such as this. And since Obama will NOT protect us it becomes even more critical that these islamic bastards know...that Barack HUSSEIN Obama know...that behind every blade of grass...and you dear reader all know exactly what I mean.
In tomorrow's part 2 of this 3-part series, my RIGHT SIDE PATRIOTS partner and friend Craig Andersen will address the specifics of islamic terrorism and its ramifications.