Jim Bruce on Future Fed policy… Fed rate not rising next year
By way of the show Boom-Bust, we have an interview with Jim Bruce on the future of Fed Policy. (interview starts at 14:40) He does not see the Fed rate lifting off next year. He does not see easy Fed policy avoiding an economic downturn. He says Fed has been unable to generate inflation at the CPI level.
I agree with everything he had to say.
Then it rises in January………………..nobody gives a hoot about inflation and read why. It is credit inflation to gdp………which is rising.
Inflation is happening, it’s just not happening at ground level, but rather up in the clouds of the 1% and corporate money polls.
If the economy is a parched garden, QE has been like pouring all that liquidity into the swimming pool in the midst of the garden. There’s all that water over there, rippling in the sun, and over here the potatoes and carrots are still browned and drooping, while Amity et al. keep on warning of flooding.
So well said…
At 21:50 Jim Bruce says, “What people didn’t consider was that if the money didn’t make it out of the banking system which it really didn’t, into the real economy, then the Fed couldn’t generate inflation. And I think that’s what happened.”
This is the heart of the problem for the Fed. They operate on the assumption that there will always be a ready supply of creditworthy borrowers who want to increase their borrowing. The “always” was never true, and we have gotten ourselves into a state which proves that to be the case.
The stock market is not the real economy. It goes up when investors think it will go up, so they buy and cause a self fulfilling prophesy. So if investors believe that Fed policy will cause more money to flow into the economy, they are more likely to buy which will cause stock prices to increase.
But stock prices are also used to compensate upper management in corporations via stock options. If you are a CEO, it is in your interest to see the company’s stock price increase after you get your stock options. One way to assure that is to have the company buy back some of its own stock. And companies have been doing exactly that.
So the stock market has been on a tear for at least 2 reasons. The 1% could leverage their buying power at low interest rates and CEOs wanted those stock options to pay off. Neither of these have much to do with the real economy.
The real economy has deep problems which have been hidden by easy credit. If you want meaningful inflation in discretionary purchases then those problems will have to be solved. Increase labor share or reduce debt or both.
I agree with you…
I would just add that the stock market was justified in rising so high due to record profits on the back of pushing labor share lower. China has taught the West how to push labor share lower and make big profits. But that lesson is not wise in the long-run.
Still, like you say, the money from the Fed did not make it into the hands of labor… neither through productive investment or shared profits.
I am with you…