Has The Fed Lost Control With Its Abnormal Policies? $2.7 Trillion in Crisis Savings Stay Hoarded by Wary Consumers

Has The Federal Reserve lost control of the economy? And inflation? The answer is likely yes. Why?

The Covid crisis has been played by the Federal government as an excuse for insane levels for spending coupled with massive monetary stimulus from The Federal Reserve.

As an example of The Fed losing control is US savings. The Fed’s model is to drive savers into consumption, therefore raising production and increasing GDP growth. But alas, The Fed can’t overcome the fear faced by consumers with Covid, Covid shutdowns, and rapidly rising prices.

(Bloomberg) — Consumers in Europe and the U.S. aren’t rushing to spend more than $2.7 trillion in savings socked away during the pandemic, dashing hopes for a consumption-fueled boost to economic growth on both sides of the Atlantic.

In the wake of lockdown easing during the northern hemisphere’s summer holiday season, excess savings in euro-area bank balances declined only marginally in August, and Italy still recorded an increase, according to calculations by Bloomberg Economics. In the U.S. there has also been no drawdown, the figures show. 

The absence of a consumption surge that had been anticipated by some economists may speak against the prospect of a lasting inflation shock feared by central banks. While higher balances could help households cope with skyrocketing heating bills, tepid demand might temper businesses’ ability to push through permanent price increases.  

In the USA, we see accumulated savings despite near-zero deposit rates at banks.

To be sure, The Fed reacted (or overreacted) to the Covid outbreak by increasing the money supply and their purchase of Treasuries and Agency MBS as the Federal government went on a wild spending spree.

But with trillions in Stimulypto Federal spending and Fed money printing, the bottlenecks in the economy (which apparently weren’t known before … ) have contributed to massive price increases that aren’t going away any time soon.

Notice how Fed monetary policies changed after the housing bubble burst and ensuring financial crisis/Great Recession. Before 2008, The Fed periodically whipsawed their Fed Funds target rate. But since late 2008, we have seen hardly any move from The Fed (except for 2017-2020 while Trump was President). For Obama,

Here is a look at The Fed’s record under Obama, Trump and Biden. The Fed raised their target rate only once under Obama until Trump was elected. Then The Fed raised rates 8 times. Then began lowering them again (5 times) leading to a big drop when Covid stuck. So for Trump, The Fed changed their target rate 13 times compared to 1 rate change under Obama and none under Biden.

And the above chart is only The Fed’s target rate. My point is that Yellen failing to raise rates under Obama has resulted in this over DC-Stimulypto we are seeing today.

Note the difference in Fed policies BEFORE the financial crisis. We need to return to a normal Fed policy rather than the hyper-inflationary zero-rate, QE policies since 2008.

M2 Money velocity (GDP/M2 Money) remains near an all-time low.

But given DC’s spending spree and all-time lows for M2 Money Velocity, The Fed is going to need to keep purchasing trillions in debt at low interest rates. The abnormal Obama years (Bernanke/Yellen) are the NEW abnormal. Or should I say abby normal policies?

Dr. Frederick Frankenstein : Now that brain that you gave me. Was it Hans Delbruck’s?

Igor :No.

Dr. Frederick Frankenstein : Ah! Very good. Would you mind telling me whose brain I DID put in?

Igor : Then you won’t be angry?

Dr. Frederick Frankenstein : I will NOT be angry.

Igor : Abby someone.

Dr. Frederick Frankenstein : Abby someone. Abby who?

Igor : Abby… Normal.

Dr. Frederick Frankenstein Abby Normal?

Igor : I’m almost sure that was the name.

Dr. Frederick Frankenstein Are you saying that I put an abnormal brain into a seven and a half foot long, fifty-four inch wide GORILLA?

So, yes, Bernanke and Yellen put into place abnormal policies that Powell is following into the world’s largest economy (or gorilla).

Only Igor and The Federal Reserve would pick such abnormal policies that ultimately lead to massive misallocations and inflation.

On a side note, do Biden and Transportation Secretary Pete Buttigieg really believe that they can fix the backed-up ports that are flooded with cargo thanks to Stimulypto? By Christmas??

Not with natural gas prices up 90% since January 4th!

Here is a video of where The Fed comes up with their abby normal monetary policies.

Is Joe Biden Actually Dwight Schrute From “The Office”? Natural Gas Prices EXPLODING And Americans Being Punished!!!!

Since Joe Biden took office in January 2021, we have seen several actions from The White House. First, was the cancellation of the Keystone Pipeline (making the US more energy dependent on others). Second, Biden waived US sanctions on Russian pipeline to Germany. Big winner? Russia. Big loser? US consumers trying to heat their homes.

Here is a chart of natural gas prices since Biden took office in January.

Biden reminds me of Dwight Schrute from the TV show “The Office” as he loves to punish people. In this case, families trying to heat their home. And have his own currency, Schrute Bucks.

Perhaps The Federal Reserve should rename the US Dollar as “Biden Bucks.”

Here is Joe Biden lecturing the American people on Covid compliance.

Pop Goes The Weasel! S&P 500 Drops 2% On Chinese Property Developer Contagion (VIX Spikes)

Pop goes the weasel!

(Bloomberg) — The S&P 500 Index extended its decline past 2% Monday afternoon amid growing investor jitters about China’s real estate crackdown potentially sparking a financial contagion.  And the Hang Seng fell 3.30% overnight.

The benchmark gauge was down 2.1% as of 12:08 p.m. in New York. All of the 11 major industry groups declined, with the energy, financials and materials sectors leading the losses. The tech-heavy Nasdaq 100 index slumped 2.4%, while the blue-chip Dow Jones Industrial Average retreated 1.9%.

By 2:33pm, the Dow is down 2.55%, NASDAQ down 3.15%.


Volatility also soared, with the Cboe Volatility Index — often called Wall Street’s “fear index” — jumping as much as 29% to 26.75, the highest level in over four months.  


“While the Evergrande situation is front and center, the reality is, stock market valuations are overstretched and the market has enjoyed too long of a break from volatility and Monday’s stock market declines are not surprising,” said David Bahnsen, chief investment officer at the Bahnsen Group, a wealth management firm.

As Evergrande bonds continue to tank.

Meanwhile, most commodity prices are falling … except for UK Natural Gas Futures which are up 16.5%!

Pop goes the weasel!