Juggling Dynamite

This afternoon’s Fed minutes reflect the usual team of congenitally confused academics wandering around in circles of economic theory. Bottom line: they still think inflation and growth will pick up this year (as they have expected every single year) and that they are likely to raise interest rates by April. The bond market seems to disagree: the 10 year treasury yield has continued to move lower today, now handily below 2%.

And Dr. Copper–that much maligned and manipulated economic indicator the past 4 years–seems to be yawning in the Fed’s general direction. Today at 2.76 (down 41% since QE-faith peaked in 2011), a breach of the 2.35-2.50 secular support line (since the credit-fueled commodity boom began in 2002), would confirm longer-term deflationary forces that the Fed so far believes are ‘transitory’.  After that, we would look for a round trip back into the pre-credit bubble band below $1.50 a pound (between green and orange lines below).

More of the bond buying ‘good money after bad’ that hasn’t worked in Japan and the US?

Lowering interest rates to virtually nothing and super cheap loans for banks didn’t work, so ECB chief Mario Draghi has to do what central banks in the US, Britain and Japan did, that is buy up government debt to pump money into the economy.

But many economists are not convinced if will be effective. Jane Foley, Head of Forex Strategy at Rabobank said: “Bond yields across the board are now extremely low, and growth is also extremely low. So you’ve got to argue that a marginal decrease in interest rates from their already low levels is unlikely to bring a boom to either growth or inflation.”

Even with ECB action, the feeling among economists is that inflation and growth are likely to remain painfully low, sparking concerns of another financial crisis, not helped by the renewed fears that Greece might be forced to leave the eurozone.

Here is a direct video link.

Joseph Stiglitz, the Nobel laureate economist who called for a tax on high-frequency trading, discusses how he was blocked from a regulatory reform panel by the financial lobby. Here is a direct video link.