Still Can't See the Voodoo

Trust me. If you deep dive through these missives you will see, in various syntaxs, the following:

if the Fed persists with raising short-term rates, you'll get a rate inversion that'll make your head explode

Well, now Jeff Somer gathers up some quotes from "experts" to weigh in on the possibility.

Simply put, while the Federal Reserve has been raising short-term interest rates since December, the bond market hasn't gotten the memo. The longer-term rates that are set through bond market trading have, for the most part, been declining, though there was a brief reversal in the last few days. But the disconnect over the last few months is a sign that bond investors believe economic growth and inflation are still weak and the Fed's actions are premature.

What's truly stupid: Yellen and the rest of the Fed management can see this happening in real time. Moreover, they fully well know that their control of short-term interest is far less than absolute and their control of long-term rates is non-existent. Yet, she persists. Why?

"... The economy keeps growing, the stock market keeps going up, yet inflation remains very low. Where are we heading? There are many possibilities here. This isn't the economy we used to know."

No. It isn't. And, as these missives (and others) have asserted for some years, the hegemony of FIRE over the rest of the economy has to lead to slower growth, as typically measured. Once again, Baumol's book ("Performing Arts, The Economic Dilemma: a study of problems common to theater, opera, music, and dance") on service sectors is a must read. In sum, capital can replace labor only when labor is menial. Such as accountants and para-legals.

Well, those in the know do know: it's Poppy Bush's Voodoo Economics all over again. All that capital infusion went to the 1% and corporations, who've either sat on it, or begorrah!, bought and bid up the price of Treasuries. By simple arithmetic, that drives down the interest rate. So, in the end, the 99% have no more moolah to buy stuff, so the prices of that stuff remains phlegmatic, while fiduciary assets soar. They could use all that moolah to invest in physical investment and added production, but of course they don't. These pundits really need to read their Samuelson.

For now, the rally in risky assets like stocks continues unabated, while the conflict between the Fed and the bond market continues. Fed officials indicate that they are determined to keep raising short-term rates and to begin reducing the Fed's bond holdings -- perhaps preparing the central bank for action whenever the next recession comes.

At a bare minimum, the policy choices ahead are difficult. And for investors, there is ample reason for caution.

Despite what the Rand-ians say, any degree of Government makes for winners and losers. The only issue is whether Government favors the most or the Elites.