The headline true GDP number of two.8% does not sound as well bad until finally you dig beneath the surface. A total one.9 percentages points of that two.eight% was inventory replenishment. Real GDP vs. a year ago is +1.6% and that is on a recession track as effectively.
5-Year Treasury Yield Hits Record Very low
Bloomberg reports Treasury Five-Year Yield Declines to Record Very low as GDP Misses Forecast
Treasury five-year note yields fell to a 3rd consecutive record reduced right after slower-than-forecast U.S. development additional to speculation the Federal Reserve will expand asset purchases to spur financial development.
10-year note yields fluctuated as stockpile rebuilding accounted for 1.9 percentage factors of the 2.eight % financial expansion, sparking concern development may possibly be weaker than expected in the very first three-months of this year. Fed Chairman Ben S. Bernanke mentioned Jan. 25 he’s taking into consideration extra bond purchases to boost growth right after the Federal Open Market Committee announced that the target lending rate would remain very low through late 2014.
Yield Curve over Time
click on chart for sharper picture
Stock Symbols in Above Chart
- $ IRX Brown: three-Month Yield
- $ FVX Blue: 5-Year Yield
- $ TNX Orange 10-Year Yield
- $ TYX Green: 30-Year Yield
Sustained financial weakness is the only sensible explanation for this decline in yields. Yes, there is Fed intervention. Nonetheless, the cause the Fed is intervening is “sustained financial weakness”.
However, the Fed’s actions are counterproductive. Driving down interest charges does not encourage bank lending, rather it does five factors the Fed does not want.
Five Undesirable Final results of Fed Policy
- Reduced interest rates clobbers people on fixed income – See Hello Ben Bernanke, Meet “Stephanie”
- Low interest rates and quantitative easing encourages bond marketplace speculation and confident earnings as a substitute of financial institution lending – See Premature Dollar Obituaries and Mainstream Economists’ Monetary Insanity Keynes-Inspired Excellent Depression Lessons Not Realized
- Very low interest rates inspire commodities speculation specially meals and power and that puts a price squeeze on manufactures. Input rates rise, but demand and charges decline. – See Chart of the Day: Apparel Import Information in Square Meters and Dollars J.C. Penney’s Slashes Costs on All Merchandise by “At Least 40%”, Offers Each Day Reduced Pricing
- Very low interest rates drives up the price tag of gold – See Gold, Silver, $ HUI React to Bernanke Pledge to Hold Rates close to Zero “At Least” by way of Late 2014 Hello Stephanie, Ben Guarantees Far more of the Exact same
- The beneficiaries of the Greenspan Fed and the Bernanke Fed policies have been the 1% not the 99%
Fed Policy Not Operating
Fed policy is not working, nor will it perform.
This is what transpires when an academic wonk with no real-planet practical contemplating sits in a box with other academic wonks with no actual planet expertise and they collectively divine economic policy as if they have been god.
The Fed is responsible for the housing bubble, the resultant collapse, and the anemic economic recovery.
GDP on Recession Track
Here is an intriguing chart from Doug Quick regarding Actual GDP and the Up coming Recession
click on chart for sharper picture
Doug Brief writes …
As the chart illustrates, the most recent YoY real GDP, at one.6% is up from final quarter’s 1.five% (to two decimal factors it really is 1.56% versus 1.46% for Q3). At one.6% the YoY range is beneath the degree at the onset of all the recessions since quarterly GDP was very first calculated — with one particular exception: The six-month recession in 1980 started out in a quarter with lower YoY GDP (at two decimal locations it was 1.42% versus today’s 1.56%). And only on one particular occasion (Q1 2007) has YoY GDP dropped below 1.six% without a recession beginning in the exact same quarter. In that case the recession started a few quarters later in December 2007.
In contrast to well-liked belief, recessions normally commence with GDP in good territory. As you can see, True GDP vs. a year ago is +one.six% and that is constant with a recession track.
It is really likely Bernanke was conscious in advance that a complete 1.9 percentages factors of that two.8% rise in GDP was inventory replenishment when he pledged on Wednesday to “Hold Charges close to Zero “At Least” by way of Late 2014″ and opened the door for yet another round of Quantitative easing as nicely.
Nonetheless, for factors noted over, yet another round of quantitative easing will be counterproductive. The beneficiaries of Bernanke policy will be the one%, not the 99%.
“Mish”
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