There is a lot of lip service being paid to the upcoming stock market crash that we're supposed to expect once the Federal Reserve starts raising rates.
Every time we get close to a regularly scheduled Federal Reserve statement, financial pundits pontificate about the nuances of what the Fed Chair might say, not say, or imply.
It's like clockwork.
But one theme remains constant: any tightening of the Fed's easy monetary policies will spell impending doom for the easy-money-addicted stock market.
The only problem, though, is that historical facts just don't support the fear. In fact, there are opportunities for investment out there no matter what rates do... Full Story
The Fed Meeting at Jackson Hole Exposed Yellen’s Greatest Weakness
At the recent central banker conclave in Jackson Hole, Wyoming, the two most powerful central bankers in the world, Janet Yellen, chair of the U.S. Federal Reserve, and Mario Draghi, president of the European Central Bank (ECB), gave back-to-back addresses on the same subject.
It was like a controlled experiment in the attitudes and capabilities of the two leading financial powers in the world.
The contrast could not have been more striking. Draghi was nuanced, technically proficient, and had some excellent policy suggestions. Yellen was rigid, backward-looking, simplistic, and made disastrous policy prescriptions.A close examination of the two speeches is a master class in the current state of central banking and a window into a distressing economic situation facing the world today...
Will Yellen’s Fed Policy Stifle the Economy?
Today (Friday), Money Morning Defense & Tech Specialist Michael A. Robinson appeared on FOX Business' "Varney & Co." to discuss the future of the Fed policy under incoming chairwoman Janet Yellen.
With the Dow Jones Industrial Average trading around 15,757, host Stuart Varney asked Robinson when he expects the index to reach 17,000.
Robinson's bullish - he said 17,000 will definitely happen in 2014. That's because, he explained, the underlying economy has a lot of strength. He pointed out two key numbers in the auto and housing markets that highlight the economic recovery.
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FOMC Meeting: What the Fed Policy Changes Mean For You
The Federal Open Market Committee (FOMC) meeting ended yesterday (Wednesday) with two important changes to Fed monetary policy.
First, the central bank said it would increase the amount of quantitative easing by replacing Operation Twist, which ends Dec. 31, with outright purchases of long-dated Treasury bonds.
Under Operation Twist, every month the Fed sold $45 billion in short-term Treasury bonds and notes and bought $45 billion of long-term Treasury bonds in an effort to keep long-term interest rates low.
Because the Fed funded its purchase of long-term bonds with the sale of short-term bonds and notes, no new money was created.
However, outright purchases of long-term bonds will create new money-$45 billion every month-and, by concentrating its buying at the long end of the yield curve, the Fed should be able to keep long-term interest rates low.
The Fed also said it will continue to purchase $40 billion of mortgage-backed securities each month, creating a total of $85 billion in new money from these operations monthly.
That means QE4 is here.
Starting in January, the Fed will be more than doubling the amount of money it is pumping into the economy. Happy New Year!
Second, the Fed set unemployment and inflation "thresholds," instead of setting a date for when the central bank expects to be able to raise interest rates. What this means is that the Fed will not raise interest rates unless unemployment is 6.5% or less or inflation is more than 2.5%.
By setting thresholds where monetary policy might change, the Fed is attempting to improve its communications with the public.
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