The Fed Is Swimming Dangerously In Uncharted Waters by Scott Minerd
Many people from all walks of life are terrified about what is happening at The Federal Reserve. The Fed’s balance sheet has dramatically increased over the last several years. The reason this has happened was because we have learned our lesson from the Great Depression — do nothing and things will get MUCH worse.
The author is right these are uncharted waters. Janet Yellen and the other central bank leaders have to be cautious about shrinking their respective balance sheets. The problem is that we don’t have an example to go by. With the Great Depression we learned that an influx of capital can help stabilize the economy – even if just a little. We have not seen either a successful or unsuccessful reduction of capital. Therefore, all the concern is warranted.
With that in mind, you can’t live in fear. We might now have the direct experience to learn from, but we still have other lessons. Such as, care for the masses. Now granted our politicians don’t really do that for the most part, but … luckily not all of our officials are politicians. Keep that in mind. Some of our leaders do actually care and have morals.
Congress to Eliminate Billions in Wall Street Subsidies to Fund Repair of Nation’s Highways by C Robert Gibson a Contributor of US Uncut
Lawmakers Weigh Cut in Fed Payout to Banks by Ryan Tracy a Reporter for The Wall Street Journal
A US Uncut article popped up on my Facebook discussing Congress possibly defunding banks to pay for the repair of US highways. This tickled my suspicious nerves. Of course, I had to look deeper into it. Then I found The Wall Street Journal’s article. This could actually be a thing.
Here is the problem with cutting the Fed dividend rate from 6% to 1.5%: Banks are counting on that 3.5% difference when creating short term (yearly) and long term budgets. So Janet Yellen is right, this does have unforeseen consequences. For many of them, Congress members are just diverting their eyes away. Some of the bigger banks could make up for the difference by not paying their execs HUGE bonuses, but not only will that not happen, the smaller banks don’t have that leeway.
I have mixed feelings about this. On one hand I am all for requiring the rich to help keep this country great — or make it great again — by financing infrastructure directly and indirectly. On the other hand, a 3.5% drop in expected revenue/income/etc is a BIG drop to makeup.
As stated previously, the “big” banks have areas they could cut that would not affect their customers, clients, or the “average” American. These include: not remodeling the million dollar exec offices, lowering exec bonus, reducing “marketing” budgets for their largest clients (businesses spend money winning and dinning their clients, especially their big client. It is reasonable to assume banks do too), and much more. However, we can all assume that these reasonable adjustments will not be implemented. Instead, overage charges will increase, and loan terms will become less favorable and the “perks” will be reduced for the smaller clients.
Banks will react to this, they can’t not react. In the end, someone is going to be hurt, and I doubt it will be the wealthy.
This morning I read Fed Should Raise Rates To Loosen Policy by David Malpass a contributor for Forbes.
The Fed does need to increase its interest rate. The current near zero percent interest rate does benefit the rich and makes lending to the not-rich difficult. It seems that David is implying that the Fed should have never implemented the near zero percent interest rate in the first place or implemented quantitative easing (QE).
Though I agree with David that the Fed could have done more during the financial crisis to help the people actually hurting — the middle class and the working poor — I do also believe that the Fed’s actions did help release some of the pressures.
With the dismissal of the Glass-Steagall Act, we were building up to a great economical disaster. Lowering the Fed’s interest rate to near zero and holding long term government bonds helped keep many businesses alive. Imagine what would have happened if the Fed hadn’t implemented such policies. We probably would have ended up with The Great Depression II instead of just a recession.
This financial crisis hit so many people. Many people lost their jobs. Many people lost their homes. Many people lost their life savings — if not during the bubble burst then in attempting to support themselves in between jobs. It was a horrible time.
Imagine what would have happened without the Fed’s actions? How many businesses would have went under? How many more people would have lost their jobs? How many more people would have lost their homes. The Fed’s actions did help prevent an even worse disaster. More could have been done to help the masses. More can still be done to help us. Less can be done to benefit the rich, especially the uber rich.