Thursday, September 19, 2019

Why Are Overnight Interest Rates Out of Control?

As I have detailed, overnight rates such as overnight repo rates and even the Fed funds rate have been exploding to the upside.

The rates on overnight general collateral repos over the last couple of days have exploded to as high as 10%.   This is "not supposed to happen" with so much banker money sitting on the sidelines at the Federal Reserve as excess reserves and earning, as of today, only 1.8% and just before that 2.1%.

Why aren't bankers putting the money to work in the Fed funds market and the repo market?

This is How I Would Approach the Housing Affordability and Homelessness Issues in California

By Adam Summers 
I am honored to have been invited to join a group of policy experts in the SoCal Policy Forum, a project of the Southern California News Group—which consists of 11 Southern California newspapers, including the Orange County Register, (Riverside) Press-EnterpriseLos Angeles Daily News, (Torrance) Daily Breeze, and Long Beach Press-Telegram—and the University of California, Riverside. The experts, who have a diverse set of viewpoints and backgrounds, are asked on a quarterly basis to briefly weigh in on issues of the day, and their responses are published on the project’s website. Other project contributions include full-length columns in the newspapers and community forums with the experts and state and local stakeholders.
The SoCal Policy Forum recently kicked off with its first set of issues, tackling housing affordability and homelessness. My responses are available at the project’s site, but I am copying them below since it is easier to see them all in one place, since the site organizes the experts’ responses randomly for each question, rather than by author.
Question 1: From your perspective, how are the problems of housing affordability and homelessness linked, and how are they different?

Wednesday, September 18, 2019

FED PANIC? Another Special Money PumpTomorrow Morning by the Federal Reserve

This is a bit technical but over the last couple of days overnight interest rates have been soaring. I mean really soaring.

I ran the below chart in the EPJ Daily Alert yesterday. It shows the change in rates on a day to day basis over the last 10 years. That spike in the far right corner is what has been occurring over the last couple of days.

Federal Reserve Cuts Interest Rates

Federal Reserve conference room
As expected, the Federal Reserve has announced that it has cut the key interest rates it controls by 25 basis points.

Specifically, it has cut the target rate for the Fed Funds rate to 1.75%-2.00%. The previous range was 2.00 to 2.25%.

This is a developing story. Return to this post for updates.


Trump Orders Substantial Increase in Sanctions Against Iran

President Trump tweeted this morning that he has ordered Treasury Secretary Mnuchin to increase sanctions on Iran, apparently as one step in retaliation against the country for allegedly attacking Saudi Arabian oil facilities:

A President Elizabeth Warren Would Be An Even Greater Calamity For the Economy Than Would a President Bernie Sanders.

Elizabeth Warren
By Max Gulker
In a Democratic primary field that looks like the cast of a Christopher Guest ensemble mockumentary, three candidates have established an early lead — Joe Biden, Bernie Sanders, and Elizabeth Warren. Sanders and Warren represent very distinct visions of the party’s left flank, but not in the way many assume.

Tuesday, September 17, 2019

Odds the Federal Reserve Will Cut Rates This Week is Collapsing

A week ago, based on trading in the Fed Funds futures market,  Fed Funds traders put the odds of a rate cut by the Federal Reserve this week at 94.6%.

Monday, September 16, 2019

Locked And Loaded In Behalf Of Empire First

By David Stockman.

American democracy and capitalist prosperity are dying on the vine of Empire. And this weekend's drone attack on the largest oil processing facility on the planet is a graphic case of why. So is the related picture below.

Keynesian and "Austrian" Speculation on the Nature of Recessions

Keynesian economist Nouriel Roubini writes at Project Syndicate:
Unlike the 2008 global financial crisis, which was mostly a large negative aggregate demand shock, the next recession is likely to be caused by permanent negative supply shocks from the Sino-American trade and technology war. And trying to undo the damage through never-ending monetary and fiscal stimulus will not be an option.
This, of course, is a type of Keynesian take on how a recession might occur.

It is an analysis almost as bad as some new "Austrian" commentary I am seeing that claims a recession could be started because of a downturn in one industry.

Oil Price Jumps the Most Ever After Attack Cuts Saudi Supplies

Brent crude has surged the most on record as markets opened for the first time since a drone strike on Saudi Arabian oil facilities removed about 5% of global supplies.

Sunday, September 15, 2019

Why the Stock Market Went Up On Trump's Tariff Delay

As I have detailed in the EPJ Daily Alert, there are many reasons for the stock market to be climbing at the present time. One of the secondary reasons that the stock market went up last week is because of news on the tariff front.

Last week, the economically ignorant President Trump did something positive when he said he would be delaying a 5% tariff hike on $250 billion in Chinese goods by two weeks as a “gesture of goodwill” as negotiations between the two nations continue.

The Cleverness of an Entrepreneur Seeking Capital

As Israel Kirzner has explained, part of the skill set of an entrepreneur is to know where to find the money to launch an entrepreneurial project.

Johnson Products Co., a company that provided hair-straightening potions for blacks, was founded on $250 and eventually for a period was the biggest supplier of hair-care products for the African-American market, according to The Wall Street Journal.

As the afro became popular in the 1960s, the company launched Afro Sheen, which ended up being an even bigger hit than the straightener.

Saturday, September 14, 2019

Saudi Oil Output Cut in Half After Drones Strike

Multiple updates including video below.

Saudi Arabia’s oil production was cut by half after a swarm of explosive drones struck at the heart of the kingdom’s oil industry, setting the world’s biggest crude-processing plant ablaze, reports Bloomberg.

Saudi Aramco has had to cut production by as much as 5 million barrels a day, roughly half their daily production, after the attack on the Abqaiq plant, according to reports.

Austrian School Hate at the Hoover Institution

I have already pointed out that Jennifer Burns, associate professor in the Department of History at Stanford University, had a skewed view of Murray Rothbard as a racist. But there is no indication that she is going to advance the theme in any of her writing.

Friday, September 13, 2019

The Recent Revival of Evil Rent Control

By Ryan Bourne

California has approved a statewide annual rent increase cap of 5 percent plus inflation for rentable accommodation in buildings more than 15 years old. Though technically an “anti-gouging” measure (it expires after 10 years), most would recognize this price cap for what it is: rent control.
Economists should be baffled about rent control’s recent revival. Controlling rental prices is one of those rare policies that practitioners of the dismal science overwhelmingly oppose. It’s even more troubling that it has been introduced in California. Recent academic evidence suggests that a 1994 San Francisco ballot initiative to introduce rent control for small multifamily housing built before 1980 actually led to:

Budget Deficit Climbs to Over $1 Trillion

This is a pure disaster.

The US budget deficit widened to $1.067 trillion for the first 11 months of the fiscal year, an increase of 19% over this time last year, reports the Treasury Department.

The government last saw this large of a fiscal deficit in 2012, when the gap was nearly $1.1 trillion.

Socialist Economist Piketty Says Billionaires Should Be Taxed Out of Existence

French socialist economist Thomas Piketty, whose 2013 book on inequality, “Capital in the 21st Century,” became a global bestseller, has just published a 1,200-page follow-up book called “Capital and Ideology.”

It won’t be published in English until March. But in an interview with the French magazine L’Obs, Piketty called for a graduated wealth tax of 5% on those worth 2 million euros or more and up to 90% on those worth more than 2 billion euros.

Krugman Catches Trump's Embarrassing Confusion About US Government Debt

Paul Krugman has this right:
In addition to demanding that the Fed cut interest rates below zero, Trump declared that “we should then start to refinance our debt,” because “the USA should always be paying the lowest rate.” Observers were left scratching their heads, wondering what he was talking about.

Thursday, September 12, 2019

Bread Prices Soar 39% Overnight in Zimbabwe

Do you want to bet that the Zimbabwe central bank money printers have been working overtime?

Zimbabwean baking companies increased the price of bread by 39%, reports Bloomberg.