Saturday , 3 December 2016


The Fed’s Next Move – More Easing Or A Rate Increase?

James Rickards…I expect a global growth depression in 2016. I think the next move by the Fed will be some form of easing, perhaps in March or April of 2016  – because of the weakness in the U.S. economy…[Here are 5 ways the Fed could ease, an analysis of each, and my forecast as to which approach they will undertake.]

The Fed’s 5 ways to ease [are]…

  1. negative interest rates…
  2. a cheaper dollar, so back to the currency wars…
  3. helicopter money…
  4. reinstating some kind of Forward Guidance…and
  5. setting up QE4…

Negative Interest Rates

…I do not expect them to go to negative interest rates, and here is why…The U.S….has a very large money market industry…and negative interest rates would destroy the  trillion dollar money market industry…If you put negative interest rates on the money market instruments, these funds are not going to have any money and they would have to shut down, as they really only have a few basis points to pay their expenses. I think this would destroy the industry and that’s why the Fed won’t do it.

QE4

I actually don’t think they would do QE4 either…because 2016 is an election year in the United States and quantitative easing has such a bad flavor, particularly among conservatives and Republicans, that if the Fed went to QE4, they would just be putting themselves in a political crossfire. In addition, independent of politics, the research shows that QE doesn’t really do anything so I don’t think they’ll go with QE.

Helicopter Money

The problem with helicopter money (or people’s QE) is that the central bank cannot do it alone, they need the corporation and fiscal authority, which in our case would be the Congress and the White House…[and with this being] an election-year, I see no prospects of any cooperation.

Conclusion: we can knock down negative interest rates, QE and helicopter money for different reasons.

Forward Guidance

Forward Guidance is easy, and it would work, is Forward Guidance…They’ll come up with some word that tells the market: “Hey, we’re not going to raise rates for the foreseeable future. As long as this world is not as good as we like it, we’re not going to raise rates. If we change our minds, we’ll take the word out and give you some advance warning.” It will be a replay of what they did with Forward Guidance in March 2015…

A Weaker USD

…Currency wars, is another strong probability…[where] the U.S…cheapens the dollar.

Conclusion

I see no way the Fed can raise interest rates this year, I think the earliest rate increase is probably the end of 2016. I expect the Fed’s next step will be easing, not tightening – which of course is very bullish for gold!

Above is an excerpt* of the Incrementum Advisory Board of October 2015**, mainly composed by quotes from Jim Rickards, and is presented here by the editorial team of munKNEE.com (Your Key to Making Money!) and the FREE Market Intelligence Report newsletter (see sample here – register here) in a slightly edited ([ ]) and abridged (…) format to provide a fast and easy read.]

*http://goldsilverworlds.com/economy/jim-rickards-what-will-the-fed-decide-in-2016/; **http://www.incrementum.li/wp-content/uploads/2015/11/AEGO-Advisory-Board-October-2015.pdf

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