Last week the clock ran out on the Fed’s latest bluff. They have gone 55 meetings over 80 months without a single tightening or rise in interest rates. Last week was supposed to be “different” and a tightening of credit was predicted by something like 82% of economists polled. We of course now know that no tightening occurred and a trial balloon was even floated about instituting a new round of QE…
This of course was an easy one to call. Look at what the markets have done since that meeting, how much worse would it be had the Fed actually raised rates? Look all around the world and especially at China beginning to unwind, do they need a tightening of credit? They just devalued the yuan again yesterday (without any mysterious plant explosions …yet), had the Fed tightened you must ask yourself how much bigger the devaluation would have been by market forces?
Leading into last week, I think the easiest way to know that credit did not need to be tightened was by looking at international trade. This is one area where the “numbers are the numbers” and are not massaged (annihilated) by government reporters (not to mention mainstream reporters!). You see, the trade numbers pretty much need to match up and the freight rates are extremely hard to hide. Pretty much, they are what they are and if lied about are too easy to debunk. Last week, Zerohedge wrote on this topic when they penned WTO’s Stark Warning On Global Trade: “The Timing Belt On The Global Growth Engine Is Off”.
Further, if you look below at the Baltic Dry index, do you see a “recovery” from 2008 or a dead cat bounce which is now waning? THIS is indicative of global GDP, anything different from individual countries is an outlier and must be seriously questioned (including China).
But why is this even important? First, because it is the REAL PICTURE but more importantly it is a very strong clue to actual rather than “made up” GDP. Spelled out for you, GDP is not growing enough (or at all) to create and bring new capital into the system. “The system” being one which has far more debt than it did during the 2007-09 event. Do you see where I am going with this? Clearly not enough growth exists globally to create the new capital necessary …yes that’s right…to carry a much larger debt load than we had back then!
Maybe it would be a good thing to remind you, one of the big problems back in 2008 was “too much debt”. Not only did the world not “liquidate” debt, it has taken on much more with an underlying economy that has been weakening for several years.
Going back to the top and full turn, how could the Fed have tightened last week? Or better, how can they ever tighten? The next move will be further additions of liquidity …at least as long as markets are open to do the “add”. Of course, just pulling the plug on the computers is another option!
Comments welcome! bholter@Hotmail.com