- First it was the ECB, and then it was the Bank of Japan, cutting interest rates overnight to -.1%
- That is the first time in this 20-year experiment of cheap money – I think they’ve been at zero, but they’ve never gone negative until just now
- One of the most ironic aspects of the move is that Kuroda, just 8 days ago told the Japanese Parliament that the Bank of Japan was not seriously considering negative interest rates, yet in a span of a week, they went from not considering it, to actually doing it!
- In fact, what Kuroda said is that, not only have they moved rates to negative, they may make them even more negative in the future, so no who knows how much more negative they will go
- He also hinted that they might expand their asset purchase program, their own Quantitative Easing
- That was enough to send global stock market rising, in fact, here in the U.S. the Dow Jones finished up almost 400 points – 396 points – the NASDAQ was up better than 100 points
- Obviously this is still a big down month, but not the worse January ever
- As I said from the beginning, 2 out of 3 ain’t bad, but it won’t work
- The Fed is going to have to join the rate-cutting party
- Right now the Fed is the lone hold-out among central banks and that is still helping the dollar
- The dollar was very strong today against the yen and also against the euro – the dollar index now almost back up to 100
- The QE currencies got clobbered
- The economic data in the U.S. is not good. We got the first estimate of Q4 GDP
- When the year began, everybody was looking for Q4 to be around 2 – 2.5%
- As all the horrible economic news poured in throughout the quarter, expectations gradually reduced so that by yesterday, the consensus for Q4 was just .9%
- We managed to come in below that at .7%
- I have been saying that by the time we get the final revision of this GDP number, we could be below zero. It doesn’t take much to take an initial estimate of .7 to below zero and we still have more data on Q4 coming out, that will bear on this, and I think the data will be bad news
- The only way the government could manufacture a GDP of .7 was to pretend that the inflation rate was just .8, and of course, the Fed supposedly have this 2% target and they need to raise rates to get to 2%
- That means nominal GDP is only going up 1.5%, which means if the inflation rate is actually higher than 1.5%, then we are in a contraction
- In fact, I’ve pointed this out many times before, if we had an honest look at inflation in the GDP, I think it would reveal that the economy has been in recession for almost the entire recovery, which makes more sense to me, because this recovery feels a lot like a recession
- It’s not like any other recovery we’ve ever experienced, and maybe that’s because it’s not a recovery – it’s a recession
- I think the recession is going to get a whole lot worse, because of what’s going on
- The way the media has been spinning this all day, even though they have reported that the GDP is .7, they are reporting that for the entire year, GDP grew by 2.4% for 2015.
- Just Google it yourself: any article on the U.S. economy and GDP states that the economy grew by 2.4% in 2015
- That’s not true! The actual growth rate is 1.8%
- If the economy grew by 1.8%, why is the media spinning the story at 2.4%?
- Here’s what’s going on: if you just measure the increase in GDP from December 31, 2014 through December 31 2015, the increase is 1.8%. That is how to measure the GDP. It grew 1.8%.
- The government doesn’t want to admit that because 1.8% is a pretty low number, the lowest it’s been in 3 years, and why would the Fed wait for the lowest annual growth rate in 3 years to finally raise rates, in fact why did they wait for a quarter when it was only .7?
- The last time we had a quarter this low, it was in a double-seasonally adjusted Q1, when we were buried under snow
- That did not happen in the 4th quarter; we had a very mild December and that probably helped out the numbers in December
- If the GDP increased by 1.8%, why is the media reporting 2.4%?
- Because if you take the average of the GDP growth rates for 2014 and compare that to the average in 2015, then you get an increase of 2.4%
- What’s the purpose in comparing the averages?
- To measure economic performance, you look at results, not the average on one year to another
- The public is going to hear these reports and assume that the economy grew 2.4% in 2015
- The reason the average GDP is 2.4% higher is because last year, most of the growth took place in the second half of the year
- So, you have a bigger gain if you measure averages, but who cares?
- How much did the economy actually grow, what is the change in the U.S GDP from the end of 2014 to the end of 2015? It’s just 1.8%.
- By the way, the national debt grew far higher than 1/8% in 2015, so our debt is growing much faster than the economy, so our debt to GDP is rising and it will be harder and harder to service that debt
- Especially if the Federal Reserve were to follow through with its commitment to raise interest rates
- If you think about what’s going on, with the ECB going negative, and the JGB going negative, why is the U.S. economy the only one not stimulating?
- Why did the Bank of Japan take interest rates negative when 8 days ago they said they weren’t even considering it?
- Did they lie? They must have been considering it before announcing. Certainly the Japanese economy is not in much worse shape than it was just 8 days ago
- The only thing that has been happening is that the stock market has been getting clobbered
- The reason that the ECB and the JGB are stepping up to the negative interest plate is to bail out the stock markets and everybody is hoping that the Fed doesn’t have to do the same thing
- If the Fed steps up, then the game is over.
- As I have said before, the U.S. is the poster boy for the success of Quantitative Easing and zero percent interest rates. Supposedly, our economy is cured and healthy
- If we have to admit that we have to go back down to zero, then on what basis does Japan pretend that their monetary policy will work?
- On what basis does Europe claim that QE and negative interest rates will work?
- It has failed in America, but no one will admit it yet
BOJ Goes Negative, 2 Down 1 To Go ! – Ep. 136
Peter Schiff is an economist, financial broker/dealer, author, frequent guest on national news, and host of the Peter Schiff Show Podcast.
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