federal reserve rates
Legendary bond guru Bill Gross doesn't think too highly of the Federal Reserve and Ben Bernanke's monetary policies.
"There comes a point when no matter how much blood is being pumped through the system as it is now, with zero-based policy rates and global quantitative easing programs, that the blood itself may become anemic, oxygen-starved, or even leukemic, with white blood cells destroying more productive red cell counterparts," Gross writes in his June investment outlook titled Wounded Heart.
Gross believes that QE, which he describes akin to a bad dose of chemotherapy, will end later this year but not because of a suddenly strengthening economy.
Do We Really Need the Federal Reserve System?
Abolishing the Federal Reserve System might seem like a drastic idea, but not when you get the full story...
You see, Congress created the U.S. Federal Reserve System to restore public confidence, provide the banking system a source of liquidity that would prevent its collapse and protect the public against inflation.
A century later, the banking system is so big its risks dwarf the Fed's liquidity capacity, and what cost a buck back then now will set you back $21.
That's why we asked Money Morning Chief Investment Strategist Keith Fitz-Gerald to explain how the Federal Reserve System actually helps a country's economy.
Most importantly, we wanted to know if the United States - or any country - even needs the Fed anymore.
Why Ben Bernanke's Market Manipulation is So Brilliant
Nothing lasts forever, apparently not even quantitative easing.
On Wednesday, Fed Chairman Ben Bernanke threatened to take away the massive punch bowl that's been spiked with easy money juice.
There's no set timetable, but maybe there is. It's hard to interpret Fedspeak.
So maybe they'll start paring back their $85 billion a month buying spree, or maybe they'll jack it up, which is what Benny said only a few sessions ago.
What the heck is he doing? What are they doing? And who are "they" anyway?
Here's the deal...
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7 Reasons Not to Trust the Bernanke Testimony to Congress
As usual, the markets were hanging on every word of the Bernanke testimony to Congress today (Wednesday).
By now, everyone should know better.
In the years that U.S. Federal Reserve Chairman Ben Bernanke has been a member of the Fed - both as a member of the Board of Governors from 2002 to 2005, and in his two terms as chairman beginning in 2006 - he has been stupendously wrong time and time again.
Bernanke gave the markets what they wanted by hinting that his monetary easing policies won't change any time soon, pushing both the Dow Jones Industrial Average and the Standard & Poor's 500 Index up more than 0.5% in midday trading.
What You Absolutely Need to Know About Money (Part 8)
It all starts with the Arab oil embargo of 1973-74.
The Arab members of OPEC proclaimed an oil embargo to punish the U.S. for aiding Israel. This action quadrupled the price of oil, roiling commodity markets, equities, bonds, and foreign exchange markets.
Energy prices soared. Speculation in oil exploration and production became feverish.
There was money everywhere.
Oil exporters in the Arab states were depositing their windfall "petrodollars" into big U.S. banks, who were in turn lending the money out as fast as they could.
What You Absolutely Need to Know About Money (Part 7)
By the start of the 1960s, banking in America was in a state of flux.
Boundaries were being blurred - especially those separating "commercial banks" and "investment banks" under Depression-era Glass-Steagall parameters. The banking landscape was shifting. In fact, it was about to go volcanic.
The Truman Administration had championed the break-up of bank cartel arrangements, whereby a powerful coterie of commercial-bank bond underwriters controlled how corporations financed debt and who got to distribute bond offerings. Subsequent regulatory changes (requiring bidding for underwriting assignments) broke up the "Gentleman Bankers Code," which had been code for cartel.
The New Crisis Warning Just Issued to the Federal Reserve
Before the housing market crash, economists warned that record low-interest and mortgage rates were fueling a housing bubble.
Unfortunately, those fears were both overlooked and underestimated.
Now, an advisory council to the U.S. Federal Reserve is warning the Fed that its record $85 billon-a-month stimulus and ultra-low interest rates are fueling new bubbles in student loans and farmland.
"Recent growth in student-loan debt, to nearly $1 trillion, now exceeds credit-card outstandings and has parallels to the housing crisis," according to minutes of the council's Feb. 8 meeting.
In addition, "agricultural land prices are veering further from what makes sense," the council said. "Members believe the run-up in agriculture land prices is a bubble resulting from persistently low interest rates."
5 Things the Federal Reserve Hopes You'll Never Find Out
Most Americans assume the U.S. Federal Reserve is a powerful government institution that seeks only to safeguard the dollar, boost the economy and drive employment higher.
That's what the Fed wants you to think.
The illusion of the Fed as a stabilizing, positive government entity has more or less existed since its creation under dubious circumstances in 1913.
"It not only avoided the word bank, it cleverly implied federal, or government, control over the establishment of a pool of reserves that would backstop the new banking 'system,'" said Money Morning Capital Wave Strategist Shah Gilani.
Why Crime Pays for "Too-Big-To-Fail" Banks
There's a reason why the first few installments of my What Everyone Absolutely Needs to Know About Money series have been about banks.
You need to know the truth about banks.
Why? Because they rob you.
Why? Because they can.
It's the Willie Sutton bank robber quote in reverse. Willie was asked, "Why do you rob banks?"
He famously answered, while in handcuffs, "Because that's where the money is."
But, banks can't keep robbing the public if they keep shooting themselves in their feet. That's where central banks come in.
Why We Can't Avoid Ben Bernanke's "Monetary Cliff"
When it comes to the Federal Reserve, an accurate "reading of the tea leaves" means paying attention to all of the fine print.
And while the markets cheered last week's FOMC meeting with yet another rally, a deeper look at Ben Bernanke's press conference left me with a slightly different take.
Sifting through the Fedspeak, it became obvious that the Fed is now lining up a "monetary cliff" that's bigger than the fiscal one we spent the last half of 2012 worrying about.
Let me explain...
Here's Where the Fine Print Gets InterestingAccording to the release from last week's meeting, the Fed will continue to purchase $85 billion of Treasury and agency bonds every month. Doing so, Bernanke explained that at some point he does expect to reduce that amount. However, he also explained that the recent string of good unemployment data (five months above 200,000 new jobs) wasn't enough yet for him to make the change.
The Fed also stated that it expects a "considerable period" to elapse between the conclusion of the purchase program and raising rates.
Interestingly, that matched with the intentions of the 19 Federal Open Market Committee members. Only a few expect to raise rates before the end of 2014, compatible with the current Fed outlook.
But here's where the fine print gets really interesting: All but one of the members now expects to raise rates in 2015.
What's more, they said once they start, they won't be shy. In fact, the average opinion would put rates at 1.35% by the end of 2015. It may not seem like much at first glance but that's actually quite a big move from six-plus years at zero. And further on into the future, the consensus long-term goal was for rates to hit 4%.
Of course, with inflation around 2%, my goal for the Fed funds rate would be higher than 4% and a lot higher than 1.35% by the end of 2015. But alas, I'm not the Fed chief.
The point is that with the Fed expecting the economy to grow steadily between now and then, and no immediate sign of even a slackening in bond purchases, the turn by the Fed supertanker in late 2014 and 2015 is going to be pretty abrupt.
In fact, chances are it will cause a big wake, and drown quite a few people who have become used to current policies.