What Will You Do When The Lights Go Out? The Inevitable Failure Of The US Grid

Submitted by Julieanna Geiger via OilPrice.com,

Delta Airlines recently experienced what it called a power outage in its home base of Atlanta, Georgia, causing all the company’s computers to go offline—all of them. This seemingly minor hiccup managed to singlehandedly ground all Delta planes for six hours, stranding passengers for even longer, as Delta scrambled to reshuffle passengers after the Monday debacle.

Where Delta blamed its catastrophic systems-wide computer failure vaguely on a loss of power, Georgia Power, their power provider, placed the ball squarely in Delta’s court, saying that “other Georgia Power customers were not affected”, and that they had staff on site to assist Delta.

Whether it was a true power outage, or an outage unique to Delta is fairly insignificant. The incident was a single company without power for six measly hours, yet it wreaked much havoc. Which brings to mind (or at least it should) what happens when the lights really go out—everywhere? And just how dependent is the U.S. on single-source power?

When you hear about the possible insufficiency, unreliability, or lack of resiliency of the U.S. power grid, your mind might naturally move toward the extreme, perhaps National Geographic’s Doomsday Preppers. Talks about what a U.S. power grid failure could really mean are also often likened to survivalist blogs that speak of building faraday cages and hoarding food, or possibly some riveting blockbuster movie about a well-intentioned government-sponsored genetically altered mosquito that leads to some zombie apocalypse.

But in the event of a power grid failure—and we have more than our fair share here in the U.S.—your survivalist savvy may be all for naught.

This horror story doesn’t need zombies or genetically altered mosquitos in order to be scary. Using data from the United States Department of Energy, the International Business Times reported in 2014 that the United States suffers more blackouts than any other developed country in the world.

Unfortunately, not much has been done since then to alleviate the system’s critical vulnerabilities.

In theory, we all understand the wisdom about not putting all our eggs in one basket, as the old-adage goes. Yet the U.S. has done just that with our U.S. power grid. Sadly, this infrastructure is failing, and compared to many other countries, the U.S. is sauntering slowly behind many other more conscientious countries, seemingly unconcerned with its poor showing.

The Grid, by Geography and Geopolitics

According to the United States Department of Energy, the American power grid is made up of three smaller grids, known as interconnections, which transport energy all over the country. The Eastern Interconnection provides electricity to states to the east of the Rocky Mountains, while the Western interconnection serves the Rocky Mountain states and those that border the Pacific Ocean.

The Texas Interconnected System is the smallest grid in the nation, and serves most of Texas, although small portions of the Lone Star state benefit from the other two grids.

And if you’re wondering why Texas gets a grid of its own, according to the Texas Tribune they have their own grid “to avoid dealing with the feds.” Now that’s true survivalist savvy—in theory.

When you look at the layout of the grid above, it’s easy to see that a single grid going offline would disrupt a huge segment of North America.

Wait—make that all of North America.

To give it to you straight, our national electrical grid works as an interdependent network. This means that the failure of any one part would trigger the borrowing of energy from other areas. Whichever grid attempts to carry the extra load would likely be overtaxed, as the grid is already taxed to near max levels during peak hot or cold seasons.

The aftermath of a single grid going down could leave millions of residents without power for days, weeks or longer depending on the scope of the failure.

So although on the surface it looks like the U.S. has wisely put its eggs into three separate baskets for safer keeping, the U.S. has in essence, lined up our baskets so that if one were to drop, or if the bottom were to fall out, the eggs from basket #1 would fall into basket #2. Which would break from the load, falling into basket #3—eventually scrambling all the eggs. Sorry, Texas.

When multiple parts of the grid fail at the same time, it’s not necessarily more catastrophic—the catastrophe just happens more quickly.

According to Jon Wellinghoff, chairman of the Federal Energy Regulatory Commission, in an interview with USA Today, "You have a very vulnerable system that will continue to be vulnerable until we figure out a way to break it out into more distributed systems."

The Grid, by the Numbers

Let’s look at the math behind the power grid, and what the U.S. is doing to improve it.

1. Through the Recovery Act, the DOE invested about $4.5 billion in the power grid since 2010 to modernize it and “increase its reliability”. $4.5 billion seems like a fairly large number, unless you’re talking about a single machine that serves as the lifeblood to nearly every human in North America—a machine that was conceived in 1882 by Thomas Edison—with little changed since then, conceptually speaking. For people who reside in weather-challenged areas, such as my home state of Michigan, a home generator is almost as necessary of an appliance as a microwave, and people are scrambling to go “off-grid” with alternative energy solutions—an act that will not provide them immunity should the lights go out everywhere else. And for what it’s worth, for those of you sporting solar and wind energy, you’re further taxing the grid—the grid just wasn’t designed to accommodate the surges and lulls of such systems, however green you find them.

 

2. Power outages—just the ones due to severe weather—cost the U.S. economy between $18 and $33 billion annually in spoiled inventory, delayed production, grid damage, lost wages and output. Despite a few billion dollars being thrown at the grid to improve its resiliency or reliability, the number of outages due to weather is expected to increase, assuming that climate change will indeed intensify extreme weather, as some predict.

 

3. The total annual cost from power outages, per federal data published in The Smart Grid: An Introduction, is a whopping $150 billion.

 

4. As of 2014, the DOE had generously spent $100 million (million, not billion) into modernizing the grid for the specific purposes of surviving a cyber incident by maintaining critical functions. This would be measures separate from making the grid more reliable.

 

5. The American Society of Civil Engineers gave the electrical grid a grade of D+ in early 2014 after evaluating the grid for security and other vulnerabilities.

 

6. The average age of large power transformers (LPTs) in the US is 40 years, with 70 percent of all large power transformers being 25 years or older. According to the DOE, “aging power transformers are subject to increased risk of failure.”

 

7. LPTs cannot be easily replaced. They are custom built, have long lead times (even 20 months, in some cases), cost millions of dollars, are usually purchased from foreign entities due to limited U.S. capacity, and weigh up to 400 tons. All this means that patching and fixing is likely to be favored over replacement, despite their age and associated risk.

Working with those figures, most of which are provided by federal sources, this means the U.S. invested, from 2010 to 2014, $4.5 billion to modernize the grid, along with an additional $100 million to stave off cyber threats. That’s $4.6 billion over four years, or $1.15 billion per year in upgrades. Next to the $150 billion lost each year due to outages, it looks like someone has done some subpar calculating.

The security of the power grid, which is a separate issue from the reliability of the power grid, is a whole other issue that concerns itself with hypothetical one-off scenarios—albeit terrible one-off scenarios. But at least there’s a chance that those one-off scenarios, such as a cyber-attack on the grid or some terrorist activity, would not come to fruition. A chance, at least.

What we are certain of, is that severe weather will continue to stress and threaten our power grid. And unless something changes, ultimately, it will fail. So when we talk about reliability, we’re talking about “when” and “for how long” scenarios, not “what if”.

The how-long factor plays a huge role into how bad is “bad”; not because of the events that one knows will follow, which includes mass food spoilage, deaths due to overheating in the hot summer months, deaths due to freezing in the cold regions, and the halting of everything we take for granted these days—airlines, internet and most other forms of communication.

All that sounds pretty bleak, but when you throw into the mix the mania and hysteria that would ensue shortly after such catastrophic events, it will be so much worse. Best-selling author Charles Mackay, in his book Extraordinary Popular Delusions and the Madness of Crowds, does a pretty good job describing, through example, how crowd decisions and reactions are significantly less sensible than individual decisions—sometimes downright nutty, as evidenced by Tulip Mania, where supply and demand—or in this case scarcity and demand, drove up the prices of tulip bulbs to ridiculous levels.

In the context of blackouts, we saw this in 1977, when a lightning strike in New York on a Hudson River substation tripped two circuit breakers, causing power to be diverted in order to protect the circuit. The chain of events that followed ended in an entire blackout for the area, which led to mass rioting, over 1000 deliberately set fires, the looting of 1600 stores, and the eventual arrest of 4,500 perpetrators and the injury of 550 officers, according to some estimates. The power was only out for 25 hours, and in one area.

In all likelihood, the haves (those who have removed themselves from the grid and prepared accordingly) will soon be overrun by the have-nots in the event of any extended blackout, with heavily populated areas taking the brunt of the chaos—and your solar roof panels or generator will not suffice as your savior.

The U.S. would be wise to follow the lead of some other countries, such as Denmark, which has decentralized its grid, but we doubt the cash exists to fund such an ambitious overhaul of an archaic system that has been left essentially unattended for decades upon decades.

(Click to enlarge)

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FDA E-Cigarette Regulations Give Smoking a Boost: New at Reason

The Food and Drug Administration’s e-cigarette regulations, which took effect last week, immediately struck two blows against public health. As of Monday, companies that sell vaping equipment and the fluids that fill them are forbidden to share potentially lifesaving information about those products with their customers. They are also forbidden to make their products safer, more convenient, or more pleasant to use.

The FDA’s censorship and its ban on innovation will discourage smokers from switching to vaping, even though that switch would dramatically reduce the health risks they face. That effect will be compounded by the FDA’s requirement that manufacturers obtain its approval for any vaping products they want to keep on the market for longer than two years. The cost of meeting that requirement will force many companies out of business and force those that remain to shrink their offerings, dramatically reducing competition and variety.

All of this is unambiguously bad for consumers and bad for public health, writes Jacob Sullum. Yet the FDA took none of it into account when it estimated the costs imposed by its regulations, simply assuming that good intentions would ensure good results.

View this article.

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Inspector General Report Finds More Violence in Privately Run Federal Prisons

Violence and safety incidents are more common in privately contracted federal prisons than those managed by the Bureau of Prisons (BOP), according to a report released this week by the Justice Department Inspector General.

An inspection by the Justice Department watchdog of three prisons run by the three largest private contractors in the U.S. revealed that privately run federal prisons “incurred more safety and security incidents per capita than comparable BOP institutions. The privately run prisons had higher per capita rates of safety incidents, lockdowns, inmate discipline and contraband than comparable Bureau of Prisons facilities.

The use of private prisons has drawn considerable attention from civil liberties groups, media investigations, and liberal advocacy groups. Last year, inmates rioted and essentially destroyed a $60 million privately run federal prison in Texas over allegations of inadequate medical care and food. The inspector general report noted several other riots and disturbances in privately run federal prisons in recent years due to anger over substandard facilities.

The inspector general report also found privately run prisons were putting new inmates in isolation for lack of space. The only categories where private prisons outperformed their federal counterparts were lower rates of positive drug tests and sexual misconduct.

About 22,000 inmates, roughly 12 percent of the total federal prison population, are housed in private prisons, the report said. Most of them are undocumented immigrants. The prisons are run by three corporations: Corrections Corporation of America; GEO Group, Inc.; and Management and Training Corporation. The Bureau of Prisons began contracting with private prison companies in 1997 to help curb overcrowding, but as of December 2015, the BOP was still operating at 20 percent over capacity, despite the federal prison population dropping in 2014 for the first time in three decades.

Overcrowding appears to be a problem at private prisons, too. Inspectors found that two of the three facilities they visited “were improperly housing new inmates in Special Housing Units (SHU), which are normally used for disciplinary or administrative segregation, until beds became available in general population housing,” contrary to BOP policies and American Correctional Association standards.

The report found the BOP also did not properly check whether inmates received “basic medical services.” Inmates at privately run prisons filed more grievances over medical and dental care than at federally run facilities, although they filed fewer grievances overall.

However, federally run prisons are far from immune from similar problems.

Another Justice Department Inspector General report from earlier this year found medical staff shortages at BOP facilities—due to trouble competing with private employers—contributed to lack of access to medical care for inmates.

In response letters to the inspector general report from CCA and GEO Group officials, the companies cited the large population of foreign nationals and gang members in its facilities as a driving factor in the higher number of incidents. A CCA official wrote that the”criminal alien population housed in contract prisons” were “significantly more likely to be involved in violence and misconduct.”

Since the inspections, the Justice Department Inspector General said the private prisons have corrected the problems it identified.

“However,” the inspector general wrote, “we concluded that the BOP still must improve its oversight of contract prisons to ensure that federal inmates’ rights and needs are not placed at risk when they are housed in contract prisons.”

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When the Olympics Crush a Community

In the run-up to Rio’s Olympic Games, the Brazilian authorities violently evicted residents and bulldozed homes in the Olympic Park area. Writing in The American Conservative, Catherine Addington defends the informal favela communities that were removed, noting that it wasn’t so long ago that Rio was attempting to integrate these self-built, self-governing communities into the city rather than aiming to eradicate them. That process was hardly flawless, but it’s clearly preferable to the mass displacement happening now.

Aside from a somewhat forced comparison between the favelas and the New Urbanism, Addington’s article is a good guide to the relevant history. Also worth a read: Priscila Néri points out that the talk you may have heard about a “disaster-free” Olympics sidesteps the disaster the games have been for the people who live nearby. And here’s a golden oldie from the Reason files: Robert Nelson looks at life in the favelas and other informal Third World neighborhoods.

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Hillary Clinton Drafting Illegal Immigrants To Boost Voter Turnout

The Clinton campaign is launching a new program that will encourage America's 730,000 DREAMers to vote…without actually voting, of course, because that would be illegal.  But now that we think about it so is immigrating to a foreign country without proper documentation.  But we digress.

The new program enlists DREAMers (aka illegal immigrants…you have to admire the Democrat marketing efforts) to register "friends, families, co-workers or classmates" to vote so they can have a positive impact on the election in spite of not being able to directly participate.  Hey why vote once when you could vote multiple times through surrogates?

Per The Hill, the program, aptly titled "Mi Sueño, Tu Voto" (My Dream, Your Vote), is a "get out the vote effort" coordinated by DREAMers so that "one by one — through friends, families, co-workers or classmates — DREAMers' futures would be considered on Election day."

"DREAMers have played a pivotal role in our campaign, advocating for families who constantly live in fear of deportation — so we've created a program that aims to turn these stories into action," said Lorella Praeli, Clinton's national director of the Latino Vote in a statement.

 

"We may not have the right to vote, but 'Mi Sueño, Tu Voto' will help ensure that our stories are heard and it will  send a clear signal to Donald Trump that we cannot be silenced," said Astrid Silva. 

 

Silva is an undocumented immigrant from Las Vegas who was brought to the United States as a child and spoke about her journey at the Democratic National Convention last month.

As an added little perk, part of the program's mission will also be to remind voters of "Donald Trump's hateful and dangerous agenda."  As a reminder, Trump has promised revoke Obama's executive orders on DREAMers within his first 100 days in office calling them the "most unconstitutional actions ever undertaken by a president."  We can see why that stance might be unpalatable.

We can think of no better way to indoctrinate young DREAMers to the American way of life than by allowing them to be exploited by a Clinton and coerced into engaging in divisive politics while leading them to believe their efforts truly matter.  Welcome to America…you're truly one of us now.

Finally, we are reminded of what happened last year when an undocumented immigrant interrupted Democratic presidential candidate Hilary Clinton at an award presentation to Chef Jose Andres at the annual Congressional Hispanic Caucus Institute gala in Washington, D.C. on Thursday night.

“Hillary, we’re watching,” 22-year-old Juan Carlos Ramos shouted as Clinton continued unfazed with her introductory speech about Chef Andres. “My deportation will be your funding.”

 

Ramos, a member of the immigrant advocacy group United We Dream Action, urged Clinton to stop receiving donations from the Corrections Corporation of America and The Geo Group, two of the largest private prison operators of immigrant detention facilities nationwide.

 

 

“Our message to Hillary Clinton is simple: immigrant youth do not trust you,” Ramos said in a press statement. “It is time to drop the prison money and stand with our community?—?you can’t have it both ways. Each dollar of private prison money accepted by the Clinton campaign undermines her pro-immigrant policy promises, and our community will not be fooled.”

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Key Events In The Peak Vacation Season Week

With Wall Street hitting peak vacation season, it is a quiet week for news. The key economic release this week is CPI inflation on Tuesday. There are several scheduled speaking engagements from Fed officials this week. Many will be looking for signs of hawkishness Minutes from the July FOMC meeting will be released on Wednesday.

It’s a quiet start today with nothing notable out of Europe and just the NY Fed Empire manufacturing survey, which missed expectations of a rebound to 2.5%, printing at -4.21, and NAHB housing market index (60 expected; 59 previous) for August to watch in the US.

Tuesday will see nothing significant out of Asia, but Europe is busier with a UK inflation data dump for July and the German ZEW survey report for August due. Over in the US we will see housing starts, industrial production and CPI data for July.

Wednesday brings us labour data for the UK in the form of jobless claims, earnings and unemployment numbers. There’s no data out of the US but the Fed will release what many see as the most important release this week out of the US, the minutes for the July FOMC meeting.

Thursday kicks off in Asia with trade data out of Japan. Over in Europe we will see July retail sales data out of the UK and July CPI numbers for the Eurozone. The US will see more jobless claims numbers for the second week of August, as well as the Philadelphia Fed Business Outlook for August.

It’s a quiet end to the week, as Friday opens in Japan with the June print for the All Industry Activity Index due. Over in Europe we will see the July PPI print for Germany while there is no data due in the US.

* * *

A tabular summary of just the key US events:

 

And global:

* * *

A quick recap of the two key events on deck, the Fed’s minutes as well as a blast of UK hard data:

Hawkish Fed Minutes?

The FOMC minutes and next week’s Jackson Hole symposium will attract close attention from markets looking for insight into the Fed’s current assessment of the policy outlook. The minutes of the 27 July FOMC meeting will be of particular interest, having increasingly become a policy tool, and at times sending a different message than the statement. Overall we expect a more hawkish tone than the statement as Fed officials emphasize that downside risks have abated and that the US data have generally been positive. We do not expect the minutes to imply an imminent hike however.

UK data, BOE QE

We see the first post-Brexit ‘hard data this week, in the form of July CPI, retail sales and the July claimant count of the labour market report. While it is too early to see much impact of the fall in GBP on inflation, and soft data so far suggests that consumers haven’t reacted as much as firms to the Brexit vote, the data will get increased attention. Following last week’s uncovered long end BoE operation, BoE QE operations will also be under scrutiny, though we do not expect another failed reverse auction.

In other data – looking 2 weeks ahead

In the US, in addition to the FOMC minutes, this week brings CPI, housing data, empire manufacturing and IP. Next week focus will turn to Jackson Hole, but we also see the second release of Q2 GDP as well as durable goods and trade balance.

* * *

Finally, courtesy of Goldman, here is a detailed preview of US events, alongside expectations:

The key economic release this week is CPI inflation on Tuesday. There are several scheduled speaking engagements from Fed officials this week. Minutes from the July FOMC meeting will be released on Wednesday.

Monday, August 15

  • 08:30 AM Empire Manufacturing, August (consensus +2.5, last +0.6): Consensus expects a modest uptick in the Empire Manufacturing survey, which declined in July. The stabilization of most manufacturing surveys in June and July from depressed levels in May suggests that US manufacturing has turned a corner and is now expanding at a moderate pace.
  • 10:00 AM NAHB housing market index, August (consensus 60, last 59): The NAHB homebuilders’ index—which we have found to be a decent leading indicator of housing starts—edged down last month, but still remains near its post-crisis highs.
  • 4:00 PM Total Net TIC Flows (last -$11.0bn)

Tuesday, August 16

  • 08:30 AM CPI (mom), July (GS +0.06%, consensus flat, last +0.22%); Core CPI (mom), July (GS +0.14%, consensus +0.2%, last +0.17%); CPI (yoy), July (GS +1.0%, consensus +0.9%, last +1.0%); Core CPI (yoy), July (GS +2.2%, consensus +2.3%, last +2.3%): We expect that core CPI rose by 0.14% in July, following a 0.2% gain in June. On a year-on-year basis, core CPI likely rose by a solid 2.2%. We estimate headline consumer prices increased by 0.06% last month, a slower pace than in June as energy prices fell. On a year-on-year basis, the headline index likely increased by 1.0%.
  • 08:30 AM Housing starts, July (GS -2.5%, consensus -0.8%, last +4.8%);  Building permits, July (consensus +0.6%, last +1.5%): We expect housing starts declined by 2.5% in July, following a +4.8% above-consensus increase in June that was driven by gains from both single-family and the more volatile multi-family segments. Housing starts have outpaced increases in building permits recently, implying a modest slowing in housing starts for July. Consensus expects new permits to rise +0.6% following a +1.5% gain in June.
  • 09:15 AM Industrial production, July (GS +0.5%, consensus +0.3%, last +0.6%); Capacity utilization, July (GS 75.8%, consensus 75.6%, last 75.4%); Manufacturing production, July (GS +0.4%, consensus +0.2%, last +0.4%): We forecast industrial production increased by 0.5% (mom) in July.
  • 12:30 PM Atlanta Fed President Lockhart (FOMC non-voter) speaks: Federal Reserve Bank of Atlanta President Dennis Lockhart will speak to the Rotary Club in Knoxville, Tennessee. Audience and media Q&A is expected.

Wednesday, August 17

  • 01:00 PM St. Louis Fed President Bullard (FOMC voter) speaks: Federal Reserve Bank of St. Louis President James Bullard will give a speech on the U.S. economy and monetary policy at a wealth and asset management research conference in St. Louis. Audience and media Q&A is expected.
  • 02:00 PM Minutes from the July 26-27 FOMC meeting: The July FOMC meeting statement suggested that near-term risks to the economic outlook have diminished. In the minutes, we will be watching out for (1) the committee’s assessment of the balance of risks, (2) any indications about the committee’s sense of urgency regarding rate increases in the near term.

Thursday, August 18

  • 08:30 AM Initial jobless claims, week ended August 13 (GS 265k, consensus 268k, last 266k)
  • Continuing jobless claims, week ended August 6 (last 2,138k)
  • We expect initial jobless claims to remain roughly in line at 265k this week, near post-crisis lows. Last week, initial claims edged down, likely due to a pullback in Michigan following auto-plant shutdowns in prior weeks.
  • 08:30 AM Philly Fed manufacturing index, August (GS +3.0, consensus +2.0, last -2.9): We expect the Philadelphia Fed manufacturing survey to move up to +3.0, after the index declined by almost 8 points to -2.9 in July.
  • 10:00 AM Leading indicators, July (consensus +0.2%, last +0.6%)
  • 10:00 AM New York Fed President Dudley (FOMC voter) speaks: Federal Reserve Bank of New York President William Dudley will give opening remarks on regional economic conditions at a press briefing. Q&A is expected.
  • 04:00 PM San Francisco Fed President John Williams (FOMC non-voter) speaks: Federal Reserve Bank of San Francisco President John Williams will give a speech on the economic outlook at the Anchorage Economic Development Corporation Luncheon in Anchorage, Alaska. Audience and media Q&A is expected. Last week, President Williams said that the strategy of a gradual path of rate increases does include a hike this year and he remains hopeful that the Fed can execute a nice, soft landing over the next couple of years.
  • 08:30 PM Dallas Fed President Kaplan (FOMC non-voter) speaks: Federal Reserve Bank of Dallas President Robert Kaplan will participate in a moderated Q&A session during a meeting of the Association for Financial Professionals at the Dallas Fed. There will be no media Q&A following the event.

Friday, August 19

  • There are no major data releases.

Source: BofA, DB, Goldman

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The Reality on Retail… and a Recession

Over 70% of the US economy is driven by consumer spending. With that in mind, one has to ask… “if retail sales are as great as the data has been claiming, why are retail stocks lagging by so much?”

Retailers lead stocks. They peaked out higher at the last market peak. And they fell harder during the subsequent decline.

What are they saying about stocks today?

Also… as Bill King recently noted, if jobs growth is so fantastic in the US, why are companies “uncertain” about consumer spending?

A Number of Companies Are Warning About High Consumer Uncertainty

Source: Bloomberg

Also… why is consumer spending on discretionary items and dining out imploding?

H/T Aurelija Augulyte

The reality?

The consumer is not strong. Consumer spending is weak and getting weaker. Stocks are pricing in economic perfection at a time that the US economy is rolling over into recession.

This is the thing Crashes are made of.

On that note, we are already preparing our clients for this with a 21-page investment report titled the Stock Market Crash Survival Guide.

In it, we outline the coming crash will unfold…which investments will perform best… and how to take out “crash” insurance trades that will pay out huge returns during a market collapse.

We are giving away just 1,000 copies of this report for FREE to the public.

To pick up yours, swing by:

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Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research

 

 

 

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Are The Fed’s Interest Rate Policies Self-Defeating?

Submitted by Michael Shedlock via MishTalk.com,

It’s rare that I agree with economic theories written up in mainstream media. But this is one of those times, at least partially.

In an opinion article on the Financial Times, writer Eric Lonergan says Interest Rates are a Spent Economic Force.

Here are the two key paragraphs.

The idea that lower interest rates raise demand is based on the view that households attempt to smooth their consumption over time. This assumed relationship has little empirical support and there are good reasons, particularly when rates are extremely low or negative, to doubt it. High existing debt levels, or poor creditworthiness, are more realistic constraints on spending than higher interest rates.

 

And what of savers? Lower rates have a depressing effect on household incomes, through reduced interest on savings and pensions. It is likely that in relatively wealthy economies — with rising healthcare costs, increasing longevity and uncertainty over pension funding — households respond to lower income on their savings by trying to save more. … The relationship of spending to lower interest rates may well be the reverse of that assumed by policymakers. If consumers do not respond to lower rates by spending more, this places an additional onus on the corporate sector.

Nearly Correct

I removed one muddled sentence to make the second paragraph read as clearly intended by context.

I endorse the above paragraphs, but also note Lonergan’s conclusion does miss the mark by a bit.

Lonergan’s Conclusion

Mr Carney is right: the traditional use of interest rates has run its course. For central banks to continue playing a role in preventing recession and raising growth, they will need to rethink the entire premise of monetary policy and aim their firepower directly at consumer spending and corporate investment. Expecting further cuts in interest rates to work is wishful thinking.

 

The scattergun approach is not hitting the target.

Interest rate policy has indeed run its course (if one agrees it ever had a course, but I don’t).

Spot on: “Expecting further cuts in interest rates to work is wishful thinking”

However, it’s certainly debatable if interest rate cuts ever did anything but kick the can down the road while blowing a series of repetitive bubbles.

Nonetheless I give Lonergan credit for at least noting the counterproductive nature of central bank actions right here right now.

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Empire Fed Tumbles Back Into Contraction As Hope Slumps To 6-Month Lows

After 2 brief dead-cat-bounce months of hope, The Empire Fed business survey has tumbled back into contraction (-4.21 missing expectations of +2.0).

The index is now at 3 month lows despite rises in the number of employees, average workweek, shipments, and new orders but 'hope' tumbles to its lowest since Feb 2016.

Indexes for the six-month outlook revealed that respondents remained optimistic about future conditions, though to a lesser extent than in July.

 

The index for future business conditions fell for a second consecutive month, dropping six points to 23.7. Indexes for future new orders and shipments also edged lower. Indexes for future employment and the average workweek were below zero, suggesting that firms expected employment and hours worked to decline in the months ahead. The capital expenditures index fell to 4.1, and the technology spending index retreated to 5.2

Yet again the central banks' asset-inflation efforts are failing to revive confidence…

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Trump Running Against ‘Crooked’ Media, Protests Turn Violent in Milwaukee, Flying Cockroaches in New York: A.M. Links

  • Donald Trump focuses on running against the media, while his campaign manager Paul Manafort, reportedly received cash payments from Ukraine’s pro-Russian government. Carlos Guttierez, who served as commerce secretary under President George W. Bush, endorsed Hillary Clinton for president. A new poll shows Gary Johnson pulling 16 percent among Latinos.
  • Protesters turned violent, clashing with police in Milwaukee over the weekend after the fatal shooting of an armed man who ran from police during a traffic stop.
  • A former soccer player died after being Tased by police in England who say they were responding to a call about concern for the safety of an individual.
  • Hackers leaked thousands of documents of various groups linked to George Soros.
  • Massive flooding in Louisiana has led to at least three deaths.
  • It was so hot in New York this weekend that cockroaches started to fly.
  • Four American swimmers competing in the Olympics were robbed at gunpoint in Rio de Janeiro.

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