Tuesday, December 13, 2016

Free Trade: The Biggest Policy Error In History

Tomorrow the Fed will have to choose whether or not to throw banks and Financials under the bus, or the rest of the world under the bus...revisionist historians may well view the aftermath of that no-way-out policy decision to be the "biggest policy error in history". Which makes as much sense as saying a single hamburger killed a 400 pound fat man...

Dow versus Rest of the World:

Banks want to hear that the Fed is hawkish and will raise rates to increase their profit margins. This is all couched of course in the best interests of the country:

Dec. 13, 2016
Banks To Fed: Normalize Rates Already
"In September...the Fed’s Board of Governors had held an unannounced, closed-door meeting with top US bankers, including the heads of Citigroup, Wells Fargo, BB&T Corp, and Northern Trust...Echoing the FOMC dissents later that month, the bank CEOs asked the board to normalize rates and stop “riding the asset bubble being generated by the easy-money policies around the globe.”

"We need higher rates, because we've already priced in 15 rate hikes..."

On the other hand, the rest of the world is cowering at the idea of further policy divergence between the Fed and every other major Central Bank, since that big sucking sound is global capital screaming into U.S. markets, and out of everywhere else. See first chart above. 

Regardless of tomorrow's decision, sadly, Central Bankster chimps are only along for the ride. Because throughout this painfully asinine era, *Free* Trade has been the SOLE determinant of Monetary policy. According to Idiocratic lamestream thinking, loose monetary policy generates inflation, which would be true in a healthy economy. However, as we see below, interest rates (black) are following inflation (red) lower. And normally inflation peaks at the end of the cycle, whereas in this cycle, inflation peaked at the beginning of the cycle:

In other words, imported poverty is now in total control of the U.S. economy:

And hence inflation and interest rates are going to follow U.S. employment much, much, much, lower...

Especially when this divergence gets resolved...