Monday, September 19, 2022

The Fed Hasn't Even Started Yet

 Everyone is looking for the Fed to raise rates again this week, most likely by 75 basis points (0.75%).  But that's not the real way to kill inflation this time around, because the real problem is the enormous amount of liquidity still out there.  On this front the Fed has done nearly nothing: its balance sheet is still very near $9 trillion, up from $4 trillion just before the pandemic.

I've been hoping to see some serious reduction week to week, but.. nothing.  My expectation is that the Fed will eventually (soon?) throw in the towel and start removing liquidity in earnest, just like it finally admitted that inflation is for real and started raising rates.

The effects on all markets will be substantial.  To put it mildly.


  1. What are the chances they are waiting for the midterms to go thru?

    1. Intentionally or not, that’s exactly what they are doing. The Fed was never apolitical, anyway. H.

  2. I started thinking... maybe overthinking... but listen to me...

    1) Unnecessarily large stimulus at the start of the Biden administration, which severely weakens the U.S. financial position.
    2) Involvement of the U.S. in a Ukraine war, which was started because (Biden claims Putin is too stupid to think straight).
    3) Depletion of U.S. strategic oil reserves.
    4) Destruction of Euro-zone financial position.
    5) Depletion of U.S. ammunition stockpiles.

    Remember Hunter's laptop?... Biden has been taking money from China for a long time... Even if he is prepared to give up the money, they probably have enough dirt to destroy him... he is their man...

    In summary... are we so sure that Xi and Putin are fools... or are we the fools...

  3. By H: Nobody rises to the top of a) the largest country by size and resources and b) the largest country by population by being a fool. Same goes for Biden, by the way...

    In sum, no one is a fool. But, they can be foolish at times..

    1. When I look at it... China and Russia's moves look like the height of stupidity.... unless they are intending to start a (full) war within the next three years.... then they will look like a stroke of genius...

    2. worries me... it does... when your enemy seems real stupid... that is when it is time to check your assumptions...

    3. Another possibility is that they are all in it together... actors on a big stage playing a bad play. None of them is stupid and they know quite well what they are doing.
      It may be time for the people to ask the question : do our leaders want our good ?
      But people are too carried by their emotions and do not analyse facts... the hens fight in the chicken coop without realizing that the farmer is the cause of all their ills.

    4. With Putin escalating the war with a possible draft, threatening nuclear weapons use... You still think he's smart? Was Hitler smart? Being a thug makes you smart? Highly doubtful. He's a desperate war criminal, he knows that if he loses in Ukraine, he's done for. Personally.

    5. Putin is certainly ruthless and thuggish, criminal even, judging by the purges he has been responsible for. That doesn't mean he's stupid. Intelligence and ruthlessness/thugishness are not necessarily mutually exclusive. In fact, they often coexist in global affairs. It is the way of all Empires, unfortunately. It is the way they rise - and the way they fall, when they overstretch.

      Currently, there is an obvious challenge to the Pax Americana, mainly from China. Russia is riding along trying to impose itself on Europe, a sort of share the spoils gambit. The Europeans gave Putin the ultimate weapon: energy. Hopefully the world will decarbonize ASAP given this impetus, but we are in for a rough several years.

      As an engineer, I can state the Ultimate Law: There is no such thing as a free lunch, aka Entropy...

  4. anon: 10.35... indeed.... as elegant an explanation I have ever heard of the slogan... war is peace.... =)

    camabron... I am not sure... perhaps Putin always intended to mobilize ... the war in Ukraine allows him to do so without it being suspicious... =)