In December 2015 the Federal Reserve raised short term interest rates by .25% signaling its’ intention to begin to return to a normal monetary policy.  The Fed indicated at that time an expectation of raising rates at least four times during 2016 on the belief that economic growth and inflation were on the rise.

Yesterday, after its’ first quarter meeting, Janet Yellen announced there would be no rise in rates this quarter.  Fed policymakers pared back forecasts for rate rises in the coming years with the median prediction for 2016 down from four to two possible quarter point rises.

 “Despite recent improvement in markets, global economic and financial developments continue to pose risks,” the statement read.  Plunging commodity and stock prices, haphazard policy making in China, and worries over weaker global growth all contributed to this about-face in policy.

This squares with my assessment that the worldwide economy continues to contract on its path of reversal of the failed economic policies of the last 30 years.  These contractions will continue, sometimes violent, sometimes mild, as the debt and asset bubbles break that have constituted the so called “growth” of the recent decades.

Periodically the system will rebalance enabling new bubbles to form and it will be called “growth.” However this will be unsustainable.  Real growth cannot occur until the enormous amount of public and private debt is reduced worldwide.


Exhibit #1; Pension Crisis

An example of this is the enormous gap between public and private pension liabilities and funding.

The US and UK companies alone are weighed down by $520 billion in pension deficits. These findings are part of a larger study by Citi published this week on the pension crisis around the world.

 This challenge is dwarfed by the size of the gap facing public sector firms. Citi says there were $78 trillion dollars of unfunded or underfunded government pension liabilities in the OECD (Organization of Economic Cooperation and Development) countries.  That compares with public national debt of $44 trillion.

 “When you look at the magnitude of unfunded liabilities, it is a ticking time bomb,” said Charles Millard, one of the reports’ authors.

The Federal Reserve has attempted unsuccessfully since 2008 to substitute funny money for real demand.  It has simply postponed the inevitable reckoning which we are now witnessing. Why else do you think oil prices are at all-time lows?  The answer is not oversupply.