Opinion: Why The US Should Learn From The Japan Model
This piece contains the opinions of the author that do not reflect the opinions of Benzinga.com.
The reasons for the Fed not raising rates keep getting more bizarre and outside the scope of what used to constitute the Fed's purview.
First it was the financial crisis, then it was GDP growth not being up to par, then it was inflation not being robust enough, then it was employment being too soft, next it became China is slowing, then it became Europe is slowing, then it was Wall Street will sell off and there will be too much volatility, then it became lack of wage growth, next it was the Dollar was too strong, and now it is that Energy is too cheap.
I am sure I missed at least 5 other reasons that have come and gone for the Fed not raising rates over the last 7 plus years of this ZIRP Fed Wall Street Welfare program.
7 Years Is Almost A Decade: The US Should Learn From The Japan Model
Remember we are not discussing whether or not the Fed Funds Rate should be 5 percent or 6 percent, we are talking about basically 0 percent Wall Street Financing Handouts for seven-plus years. If Wall Street cannot get their act together in seven plus years of essentially 0 percent financing, then they will never be able to get their house and structural holdings in order and stand on their own two feet.
Risk-Taking And Leverage Are At Financial Crisis Proportions
The risks to the financial system are off the charts, there are asset bubbles all over the place, directly correlated to 7 plus years of ZIRP, and the bubbles and complacency are getting worse by the month.
The overzealous chasing of yield at any cost incentivized by ZIRP in the bond markets is the most dangerous bubble the Fed needs to get real concerned about, price and yield return relative to risk of any of these bonds being remotely in the same ‘Value Stratosphere” over 10 and 30 year duration periods, and the fact that all the major banks (which are the purview of the Federal Reserve) have balance sheets filled to the gills with these mispriced assets due primarily to ZIRP Handouts by the Federal Reserve should be their only concern right now!
ZIRP Was Never Intended To Be Permanent, It Was Intended For 1-2 Years Max
Forget how cheap energy becomes, or Wall Street selling off before every Fed meeting to show the Fed look to much volatility, can't raise rates now, or there is not enough multiple expansion in the Dow, or the Baby Boomers are going to start pulling money out of the market, or a myriad of other reasons.
Just set a target date, a rate hike schedule for 2015, and stick to it regardless of the individual noise and micro events that take place every day in the world. If one looks hard enough there will always be a reason why the Federal Reserve has to continue these Wall Street Handouts which ultimately cause more harm than good by creating massive, systemic risk bubbles that always negate all the good intentions in one fell swoop of unintended consequences.
If The Fed Cannot Raise Rates Now, Almost A Full Business Cycle Wasted
After the latest economic data for the last three months if the Fed cannot stand up and set out a rate hiking schedule for 2015 starting by my calculations in March of 2015 with a 25 basis point rate hike, and ending 2015 at the 1.75 percent to 2 percent area for the Fed Funds Rate, then just abolish the Federal Reserve because they obviously serve no purpose except for show. Just make ZIRP Economic Law, and all debt is ultimately Null and Void, canceled in the end.
This may seem like an attractive option to the Paul Krugman's of the world, but the end game has nasty consequences that make adopting a simple rate hiking schedule the preferable option even for these folks when push comes to shove.
And my point is that push has come to shove and the global labor markets are getting tighter and we are starting to experience wage inflation in the third quarter Bloomberg Article on Rising Wages and once wage inflation starts spiking, it oftentimes really spikes, comes out of nowhere, and all the sudden Central Banks get more than they bargained for because this means instead of progressive 25 basis point rate hikes spread out over several months, they are forced to raise rates in 50 basis point increments over a much shorter time period, and then markets will show the Fed what real volatility looks like.
Deferred Gratification In Reverse Equation
There used to be an Oil Product Commercial that vehicle owners can change their oil and update their filter according to the maintenance schedule or pay a much bigger price down the line in the form of the cost of a blown engine.
The Fed can pay a little now, or a whole lot later on, and the risks versus benefits of ‘Can-Kicking' Rate Hikes down the line any further have reached their breaking point as the spike in wages is sending clear cut signals that the US labor market is getting tighter by the month with an additional 200k new jobs added to the economy each month.
Wall Street Needs Concrete Dates To Finally Realize The Inevitable
It is time to raise rates, deal with it Wall Street there will never be a perfect time to raise rates based upon Wall Street's criteria. Lower energy prices are a good thing, how often do we say if we could just find a cheaper energy source, the global productivity would take off to the next level, it would really be a game changer. We finally get cheaper global energy costs, and now everybody is complaining; these same people were probably complaining about too high of energy costs just 6 months ago.
A normalized rate curve is a good thing, CDs that actually have a more normalized return for saving money is a good thing, normalizing financial markets are a good thing, reducing financial risks to the system in terms of asset bubbles is a good thing, and it is time for the Federal Reserve to stop this ‘data dependent nonsense' and lay out an actual full rate hiking schedule in interest rates for 2015, and the place to do it is this FOMC Meeting as the financial markets are going to need ‘considerable time' to adjust to this change in Fed policy after 7 plus years of ZIRP.
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