{"id":1163925,"date":"2020-02-04T16:30:46","date_gmt":"2020-02-04T22:30:46","guid":{"rendered":"https:\/\/dailyreckoning.com\/?p=108932"},"modified":"2020-02-04T16:30:46","modified_gmt":"2020-02-04T22:30:46","slug":"if-theres-a-recession-dont-worry","status":"publish","type":"post","link":"https:\/\/juniorminingnews.com\/?p=1163925","title":{"rendered":"\u201cIf There\u2019s a Recession, Don\u2019t Worry\u201d"},"content":{"rendered":"

This post \u201cIf There\u2019s a Recession, Don\u2019t Worry\u201d<\/a> appeared first on Daily Reckoning<\/a>.<\/p>\n

\u201cPride goeth before destruction,\u201d warns the Book of Proverbs… \u201cand a haughty spirit before a fall.\u201d<\/p>\n

The Federal Reserve might keep this biblical reproach close by\u2026<\/p>\n

For as one Federal Reserve magnifico boasted recently \u2014 pridefully and haughtily:<\/p>\n

\u201cIf there\u2019s a recession, don\u2019t worry.\u201d<\/p>\n

Don\u2019t worry, that is, because \u201cthe Fed is very powerful.\u201d<\/p>\n

This information we gathered through our vast web of spies\u2026<\/p>\n

Dispatch From a Banking Conference in Puerto Rico<\/b><\/h2>\n

The Federal Reserve hosted a recent banking conference on the Caribbean island of Puerto Rico.<\/p>\n

Old Daily Reckoning<\/i> hand and \u201csovereign man\u201d Simon Black dispatched an agent to listen in\u2026 who wired back the transcript.<\/p>\n

Says Simon, via his man in San Juan:<\/p>\n

\n

One very senior Fed official\u2026 told the audience, \u201cIf there\u2019s a recession, don\u2019t worry,\u201d because \u201cthe Fed is very powerful\u201d and has all the tools it needs to support the economy.<\/i><\/p>\n<\/blockquote>\n

To which instruments of power does this grandee refer?<\/p>\n

We have no specific information. But interest rates cannot be among them\u2026<\/p>\n

The Fed Has Limited \u201cStrategic Depth\u201d to Fight Recession<\/b><\/h2>\n

History argues the Federal Reserve requires rates of 4% or 5% to vanquish a recessionary foe.<\/p>\n

Only these elevated rates give it the \u201cspace\u201d to slash rates sufficiently \u2014 to zero if necessary.<\/p>\n

But today\u2019s federal funds rate ranges only between 1.50% and 1.75%.<\/p>\n

Thus the central bank\u2019s last trench line \u2014 the zero bound \u2014 lies dangerously close in back of it.<\/p>\n

That is, the Federal Reserve presently lacks the strategic depth to mount a successful rate-based defense\u2026 and wear down the enemy in its protracted meat grinder.<\/p>\n

Should the enemy puncture the Fed\u2019s shallow defenses, the vast rear is currently open to it. And recession would have the entire economy in siege.<\/p>\n

What weapons, then, might remain in the Federal Reserve\u2019s arsenal?<\/p>\n

Additional quantitative easing? Perhaps \u201cforward guidance\u201d? They are on hand, yes.<\/p>\n

But what about negative interest rates, previously confined to the drawing board? Why make the zero bound your last line of defense?<\/p>\n

Why not stretch the barbed wire behind it, lay down mines\u2026 and dig additional trenches in negative territory?<\/p>\n

Negative rates would deepen and stiffen the defense, their boosters argue.<\/p>\n

Three Full Percentage Points!<\/b><\/h2>\n

Former Federal Reserve Field Marshal Ben Bernanke insists these are formidable anti-recession armaments. He sets great store by them, in fact.<\/p>\n

Quantitative easing, forward guidance and negative interest rates \u2014 combine them one with the other, says this strategic genius…<\/p>\n

And they equal three full percentage points of rate cuts. Three full percentage points!<\/p>\n

By his lights then, today\u2019s federal funds rate is not as low as 1.50% \u2014 but as high as 4.75%.<\/p>\n

That is\u2026 the Federal Reserve presently enjoys nearly all the strategic depth required to fight back recession.<\/p>\n

We suppose these are the weapons our anonymous central banker has in mind \u2014 those that render the central bank \u201cvery powerful.\u201d<\/p>\n

But we are not half so convinced. We see not an impregnable defense\u2026 but a Maginot Line, vulnerable to a superior strategy.<\/p>\n

We envision a flanking attack, with enemy armor snaking its way through the Ardennes, bypassing the forts.<\/p>\n

We further envision a thrust through the Moselle Valley\u2026 and into the defenseless economic interior.<\/p>\n

The Fed\u2019s Weak Defenses<\/b><\/h2>\n

Place no faith in the Federal Reserve\u2019s Maginot Line, argues Jim Rickards:<\/p>\n

\n

Here\u2019s the actual record\u2026<\/i><\/p>\n

QE2 and QE3 did not stimulate the economy at all; this has been the weakest economic expansion in U.S. history. All QE did was create asset bubbles in stocks, bonds and real estate that have yet to deflate (if we\u2019re lucky) or crash (if we\u2019re not).<\/i><\/p>\n

Meanwhile, negative interest rates do not encourage people to spend as Bernanke expects. Instead, people save more to make up for what the bank is confiscating as \u201cnegative\u201d interest. That hurts growth and pushes the Fed even further away from its inflation target.<\/i><\/p>\n

What about \u201cforward guidance\u201d?<\/i><\/p>\n

Forward guidance lacks credibility because the Fed\u2019s forecast record is abysmal. I\u2019ve counted at least 13 times when the Fed flip-flopped on policy because they couldn\u2019t get the forecast right.<\/i><\/p>\n

So every single one of Bernanke\u2019s claims is dubious. There\u2019s just no realistic basis to argue that these combined policies are equal to three percentage points of additional rate cuts.<\/i><\/p>\n<\/blockquote>\n

Fighting the Last War<\/b><\/h2>\n

Generals prepare to fight the last war, it is often argued. We suppose central bankers prepare to fight the last crisis.<\/p>\n

Meantime, the relentless enemy is preparing to wage the next recession. It learns, it adapts. It originates new tactics, new weapons\u2026 new strategies.<\/p>\n

It bypasses Maginot Lines.<\/p>\n

And so we expect the next recession to catch our hidebound central bankers unaware\u2026 facing straight ahead while the tanks roll in from their flank.<\/p>\n

But we expect a new war plan to emerge from the next recession, once all existing defenses are flat.<\/p>\n

The New Wonder Weapon<\/b><\/h2>\n

At its center will be the wonder weapon of Modern Monetary Theory, or MMT.<\/p>\n

Up it will go in its Enola Gay\u2026 and the fiscal authorities will unload it high above Main Street.<\/p>\n

Cash will come raining down upon the unsuspecting residents below, like so much confetti.<\/p>\n

They will then vanish into stores, into restaurants, into theaters to disgorge their newfound bounty.<\/p>\n

The secondhand recipients of this bounty will proceed to exchange it for autos, boats and houses.<\/p>\n

The third-hand recipients will in turn send the money on its way, fanning out in greater circles yet.<\/p>\n

The entire economy would soon be on the jump\u2026 and recession thrown headlong into rout, permanent and humiliating rout.<\/p>\n

But this super-weapon packs greater wallop yet\u2026<\/p>\n

Everything for Everyone<\/b><\/h2>\n

It can furnish the wherewithal for a \u201cGreen New Deal,\u201d universal health care, free college for all\u2026 and guaranteed employment.<\/p>\n

If John is unemployed, if Jane cannot meet tuition, if Joe lacks health care\u2026 then simply print the money to make them whole.<\/p>\n

Send it marching off for duty in the general economy, where it will make all shortages good.<\/p>\n

MMT says unemployment, for example, is direct evidence that money is overtight.<\/p>\n

Print enough and you have the problem licked.<\/p>\n

But didn\u2019t the government print money like bedlamites after the financial crisis? How can money possibly be tight?<\/p>\n

Ah, but QE\u2019s trillions were funneled off into credit markets, where they liquified the financial system.<\/p>\n

They did not enter the Main Street economy. That is why inflation never got its start.<\/p>\n

But with MMT, the money goes straight from the print press to the Treasury.<\/p>\n

It can then be spent into public circulation \u2014 on a New Deal, for example. Green, red, blue, purple or pink\u2026 the choice is yours.<\/p>\n

Or for free college, universal Medicare\u2026 jobs for all.<\/p>\n

But you raise an objection. MMT is a cooking recipe for massive inflation, you say\u2026 even hyperinflation.<\/p>\n

Inflation? No Problem<\/b><\/h2>\n

Yes, but the MMT crowd has anticipated your objection and meets you head on.<\/p>\n

They actually agree with you. They agree MMT could cause a general inflation, possibly even a hyperinflation.<\/p>\n

In fact, inflation is the one limiting factor they recognize, the one potential monkey wrench jamming the gears.<\/p>\n

But they have the solution: taxation.<\/i><\/p>\n

If inflation begins to bubble, to gurgle, the government can simply drain the excess dollars out of the system.<\/p>\n

Under MMT the economy is the tub. Taxation is the drain.<\/p>\n

Under the theory, in fact, stifling inflation is taxation\u2019s central purpose. It is not to raise revenue.<\/p>\n

\u201cIgnoring It Would Be Foolish\u201d<\/b><\/h2>\n

Is the theory crackpot? Yes, we are convinced it is.<\/p>\n

But desperate times invite desperate measures. And when recession rolls on through the Federal Reserve\u2019s defenses… desperate measures we will see.<\/p>\n

We cannot say when of course. Nonetheless…<\/p>\n

\u201c[It] is coming,\u201d warns analyst Kevin Muir. \u201cIgnoring it would be foolish.\u201d<\/p>\n

Yet these are foolish times\u2026\u00a0 inhabited by foolish people.<\/p>\n

Do you require proof?<\/p>\n

Simply recall the recent counsel of a senior Federal Reserve official:<\/p>\n

\u201cIf there\u2019s a recession, don\u2019t worry.\u201d<\/p>\n

Regards,<\/p>\n

Brian Maher
\nManaging editor The Daily Reckoning<\/i><\/p>\n

The post \u201cIf There\u2019s a Recession, Don\u2019t Worry\u201d<\/a> appeared first on Daily Reckoning<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

This post “If There’s a Recession, Don’t Worry”<\/a> appeared first on Daily Reckoning<\/a>.<\/p>\n

A senior Fed official laughs away all recession fears…<\/p>\n

The post “If There’s a Recession, Don’t Worry”<\/a> appeared first on Daily Reckoning<\/a>.<\/p>\n","protected":false},"author":16,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""}},"footnotes":""},"categories":[3724,366,721,818,3759,716,719,463],"tags":[],"_links":{"self":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts\/1163925"}],"collection":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/users\/16"}],"replies":[{"embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1163925"}],"version-history":[{"count":1,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts\/1163925\/revisions"}],"predecessor-version":[{"id":1163926,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts\/1163925\/revisions\/1163926"}],"wp:attachment":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1163925"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1163925"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1163925"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}