Inflation- What It Is, What It Isn’t, And Who’s Responsible For It – March 4, 2018
Guests: Kelsey Williams and Kevin Massengill
The Income Generation With David J. Scranton
So once again is inflation the main thing Wall Street is really concerned about these days or is there something else going on. Please consider that after Donald Trump election the rate on the 10 your Government Bond shot up by 8/10 of 1% but the stock market went up and the bond market also went up at the same time and even though the market was not adversely affected in any way buy this interest rate increase. Why? Because was based on something real an emotional shift, as the optimism about the future changed supply and demand Factor of investment, in that sense emotions are indeed a real force in the direction of markets but when long-term interest saw a smaller spike in January of this year and February at a rate of about half percent the stock market and both the bond market were both affected, so what was the difference then in regards to what happened right after the election versus over the last 2 months? The difference was that this time it wasn’t real, investors knew that the spike was being driven not by an emotional shift but once again mainly by the Federal Reserve artificial influence. Late last year the Feds started the process of unwinding quantitative easing, that process includes selling back the more than 2 trillion dollars worth of bonds that it had purchased through three rounds of quantitative selling starting in 2008, United States government is scheduled to issue additionally nearly a trillion dollars in bonds this year compared to 550 million last year, part of the intent is to force long-term interest rate back up by flooding the market with bonds, it will increase the supply of bonds to drive down prices and in turn drive up long-term interest rate as there’s an inverse relationship between bonds and interest rate. Theoretically, the feds want to do that so that they can continue to increase the short-term interest rate the feds want to do this without flattening the old curve, we discussed this earlier they also want to make sure that they have ammunition to lower interest rates again if we sink into another recession which is a possibility we will discuss more later. It will all make sense but you know like in most cases there is another theory why the Federal Reserves is trying to dry up long-term interest rate at this particular time, politics. The fact that the Federal Reserve is fairly liberal and that a lot of its members’are anti-president Trump. If they can force long-term interest rates now they could change the direction of the Financial Market and stop the president’s agenda even before his tax cuts have a chance to really kick in.
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