Fed is closer to QE4 than rate hike

“If you don’t have yer growth, you can’t have yer rate hike. How can you have a rate hike if you don’t have yer growth?

If Pink Floyd was writing on economic realities, then this could be a line out of “The Wall.”

The thought behind the music is, the world is nearing a deflationary recession, central banks will be cutting the value of their currencies to find growth, and you want to raise rates?

Yellen and Co. know this to be true, they will see it in retail sales numbers later this week. The American consumer is keeping their collective hands in their pockets.

Look at the retailers trying to capture the consumer in back to school sales. Huge discounts and we are just getting underway. A 70% off sale four weeks before school starts, does not portend good tidings for this stores.

You will here analyst say, “The Fed is pushing against a string,” which tells you it has no leverage to hike.

Just look at the Fedspeak on inflation. “It’s running below trend.” Translation, there is no pricing power for the manufacturing, wholesalers or retailers.

The US consumer knows this and figures that the product will be cheaper in the future then it is now and puts off a purchase, that deflationary.

That’s what the Fed fears, because it has no tools to combat deflation. Raising rates would only make the matter worse, so that is why I say The Federal Reserve is closer to QE4, then raising rates.


 

I ran into Jim Rickards, author of “Currency Wars” among other books yesterday.

Jim’s book reads like a financial news segment for today. It’s the dynamic of central banks slashing the value of their currency to spur growth, but it rarely ever works to the benefit of the people.

China’s central bank is now in the second day of “defending its currency,” which means all Chinese are taking haircuts of their wealth.

I would not say Jim is a gold bug, but he does believe there is a place in the portfolio for the precious metal as these currency wars take place. Gold is up $25 in two days in NY as a result of the debasement of the yuan.

In this scenario gold is a store of wealth. An investment to preserve value, while currency value falls.

Let’s say China will not be the only central bank to cheapen its currency this week. Other Asian trading partners — who live on the premise of being a cheaper alternative to China’s manufacturing — will need to debase their currency along with Russia. This is the war aspect of currencies.

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