- If they raise rates - it makes dollar-based assets more attractive; spurs demand for dollars and contradicts the Admins' ill advised public valuation demands upon China's Yuan.
- If they raise rates - the who-knows-what 200 stories tall, $2T MBS derivatives-laden inventory on the books at the Fed will, like birds this time of year, head south pronto. And I might add, at the risk of pointing out the obvious, surface conflicts of interest when the Fed holds said "securities" sure to be exacerbated** by the looming prospect of more quantitative easing "QE2". **Derivatives are NOT like the 1980s' condo's in Houston, which you may recall - the city bulldozed i.e. the Fed can't bulldoze securities out of existence - after all they paid 100 cents on the dollar CASH (US taxpayer Cash) for this you know what.
- If they raise rates - holders of ALL bonds, fixed income, derivatives values will also take a major hit.
- If they raise rates - banks will cease to enjoy the artificial LIFE-SUSTAINING-GOING-CONCERN GIFT of at least 300 bps+ spread from the norm.
- If they raise rates - what happens to price of oil? Holding all else the same, oil is priced in dollars, and tends to go up as value of dollar goes up.
- If they raise rates - US exporters lose relative currency advantage, since we know that domestic demand is as it should be, flat on its back. After copious drawn-forward consumption in the hockey stick era, driven by steroidal cash-out-refi's during the unmistakable real estate bubble from 2004 to 2007. Within these comments posted by Edward Hugh, excerpt here: "Traditionally the solution to this kind of problem would be to induce a devaluation in the respective currencies to restore competitiveness, but in the midst of an effectively global crisis doing this is very difficult, and only serves to produce all sorts of tensions. As Krugman once said, “to which planet are we all going to export”.
- If they raise rates - they would be admitting the economic and financial truth. How's that? If US debt was priced fairly in a fully disclosed, non - conflicted, non-political fashion - it would signal to global creditors a more accurate reflection of the real state of all gummint financial conditions. Such recognition may have a very desirable silver lining - FORCING Congress and elected representatives to work together in all levels of gummint to take a REAL look and make the hard choices among an increasingly dwindling set of policy alternatives.
- The paradox the Fed must navigate and coordinate is this - we could grow our way out of this BUT whither final demand?
- How do we create, spur sustainable final demand, in which the Fed is powerless. It requires a fiscal act because in the end it all comes back to investing in education and training of ALL willing and able people. Such investment, NOT as gummint handouts rather a partial income tax abatement for wage or self employment income in the first 3 years of a NEW job or business.
Ending the siesta on the taxpayer's dime - one easy to read blog at a time.
Chris aka McFid*
* Since 2003, when you need to know exactly what a BFD looks like.
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