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The Fed’s Grand Bargain Has Finally Imploded

The Fed’s Grand Bargain Has Finally Imploded



The Fed's Grand Bargain Has Finally Imploded Tyler Durden Tue, 06/16/2020 - 16:45

Authored by Charles Hugh Smith via OfTwoMinds blog,

The Fed has backed itself not into a corner but to the edge of a precipice.

Though the Federal Reserve never stated its Grand Bargain explicitly, their actions have spoken louder than their predictably self-serving, obfuscatory public pronouncements. Here's the Grand Bargain they offered institutional investors and speculators alike:

We're taking away your low-risk, high-yield investments by slashing interest rates to near-zero, but we're giving you endless asset bubbles as a new way to notch reliable gains. This trade-off has worked for 20 years as the Fed hyper-inflated one asset bubble after another until they finally inflated everything to precarious extremes: The Everything Bubble of 2019 that started unraveling in September 2019, long before the pandemic.

The Everything Bubble includes: stocks, housing, commercial real estate, corporate debt, junk bonds, CDOs, CLOs, bankrupt companies, phantom companies, etc. The Fed inflated all these assets bubbles as a "can't lose" proposition for yield-starved institutions that can't survive on low-risk 1% Treasury yields.

These institutions include: public union pension funds, insurance companies, mutual funds, wealth management entities, hedge funds, banks and 401K retirement fund managers.

Asset bubbles are not a substitute for Treasury bonds and AA-rated corporate/municipal debt for one reason: risk. Despite all the extravagant claims about risk being hedged, the reality is that risk cannot be made to disappear, it can only be transferred to others.

Asset bubbles are intrinsically unstable and therefore risky. All bubbles pop, period, and whomever is holding the bag as the bubble pops will suffer catastrophic losses. The Fed and its countless apologists / lackeys claim the Fed has our back and so bubbles will never pop because the Fed will print as much money as needed to reflate any bubble that's losing air.

After unprecedented asset bubbles popped in 2000 and 2008, the Fed apologists / lackeys all claimed the bubbles only popped due to a policy error. If only the Fed had (insert policy: waved more dead chickens over the bonfire, danced the humba-humba with Paul Krugman, bought bat-guano futures through offshore proxies, etc.), then the bubble would have continued expanding to infinity: Dow 100,000, yee-haw!

This fantasy ignores the dynamics of bubbles: when bubbles reach extremes, they implode regardless of policy tweaks and media appearances.

The Fed lowered rates to bring demand forward and lower the cost of additional borrowing by households, companies and governments, the goal being to stave off recession and encourage speculative gambles in housing and stocks that would generate the wealth effect to further stimulate imprudent borrowing and spending.

Don't put off buying that new pickup, the Fed screamed; buy it now while rates are near-zero. (Buying what you would have bought next year right now is bringing demand forward.)

The problem with bringing demand forward is eventually there's no demand or credit left to buy more stuff because all the demand was brought into the present and only the most marginal borrowers (and those who refuse to borrow more no matter how low rates go) are left.

Goosing stocks to ever-higher valuations even as revenues and earnings stagnate or collapse reaches the same end-game: by the time stock valuations have completely lost touch with reality (in March 2000 and again now in February - June 2020), the delusionally euphoric belief that stocks will continue to loft ever higher because the Fed has our back is only credible to the last few greater fools. Once the pool of greater fools is drained, stocks crash.

The same can be said of corporate debt, which has reached unprecedented levels around 50% of GDP. Once again, greater fools are buying potentially worthless junk bonds because the Fed has our back, even though the Fed's junk-bond buying is a leaky bucket compared to the tsunami of defaults that's about to wash away the entire junk bond sand castle.

The Fed's primary job has been to transfer risk from the most ferociously parasitic and predatory speculators to its own balance sheet, which expands as the Fed buys the fetid garbage of a speculative bust through proxies. Whatever risk can't be buried in the Fed's foul cellar of financial sewage is off-loaded onto the hapless taxpayers via soaring federal deficits.

The Fed's shameless army of apologists/lackeys claim the Fed can always start buying stocks directly as the final measure to goose stocks to ever more absurd highs. But the apologists/lackeys never follow through to the logical end-game of their folly: eventually the Fed owns most of the assets it has goosed to the moon, leaving nothing for private-sector capital to earn a return on.

If the Fed ends up owning most long-term Treasury bonds, most corporate debt, most of the mortgage backed securities (MBS), most of the stock market, etc., then what's left for the tens of trillions in private-sector capital that sold all its risky assets to the Fed? What's left to invest in that's low-risk and high-yield?

The answer is: nothing. Simply put, inflating asset bubbles is not a substitute for low-risk, high-yield investments such as Treasuries, and buying the guaranteed-to-default sewage of corporate junk bonds doesn't make new junk bonds any less risky or any less prone to default.

The Fed has backed itself not into a corner but to the edge of a precipice. It cannot allow interest rates to rise enough to offer institutions low-risk alternatives to gambling in asset bubbles, and it can't goose the insanely over-valued asset bubbles it's inflated any higher without triggering political blowback as the Fed's asset bubbles are the primary driver of soaring wealth inequality.

Buying stocks directly won't create low-risk, high-yield returns for institutions; all it will do is bury the risk in the Fed's ballooning balance sheet while stripping insurers and pension funds of the returns they need to remain solvent.

Yields will remain near-zero while all the asset bubbles implode, destroying tens of trillions of dollars in phantom capital. The Fed's grand bargain--offering inherently risky asset bubbles as a substitute for low-risk, high-yield bonds--has collapsed. Everyone with a stake in an asset bubble is about to have a Wile E. Coyote realization that the risk they thought had vanished has emerged as gravity.

It's a long way to the bottom of the canyon, and the impact will be devastating. This impact is the dreadful price of avoiding healthy business-cycle recessions in 2000, 2008 and 2016 that would have cleared the economy of speculative deadwood and toxic zombie companies.

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War, peace and security: The pandemic’s impact on women and girls in Nepal and Sri Lanka

The impacts of COVID-19 must be incorporated into women, peace and security planning in order to improve the lives of women and girls in postwar countries…



Nepalese girls rest for observation after receiving the Moderna vaccine for COVID-19 in Kathmandu, Nepal. (AP Photo/Niranjan Shrestha)

Attention to the pandemic’s impacts on women has largely focused on the Global North, ignoring countries like Nepal and Sri Lanka, which continue to deal with prolonged effects of war. While the Nepalese Civil War concluded in 2006 and the Sri Lankan Civil War concluded in 2009, internal conflicts continue.

As scholars of gender and war, our work focuses on the United Nations Security Council Resolution 1325 on women, peace and security. And our recently published paper examines COVID-19’s impacts on women and girls in Nepal and Sri Lanka, looking at policy responses and their repercussions on the women, peace and security agenda.

COVID-19 has disproportionately and negatively impacted women in part because most are the primary family caregivers and the pandemic has increased women’s caring duties.

This pattern is even more pronounced in war-affected countries where the compounding factors of war and the pandemic leave women generally more vulnerable. These nations exist at the margins of the international system and suffer from what the World Bank terms “fragility, conflict and violence.”

Women, labour and gender-based violence

Gendered labour precarity is not new to Nepal or Sri Lanka and the pandemic has only eroded women’s already poor economic prospects.

Prior to COVID-19, Tharshani (pseudonym), a Sri Lankan mother of three and head of her household, was able to make ends meet. But when the pandemic hit, lockdowns prevented Tharshani from selling the chickens she raises for market. She was forced to take loans from her neighbours and her family had to skip meals.

Some 1.7 million women in Sri Lanka work in the informal sector, where no state employment protections exist and not working means no wages. COVID-19 is exacerbating women’s struggles with poverty and forcing them to take on debilitating debts.

Although Sri Lankan men also face increased labour precarity, due to gender discrimination and sexism in the job market, women are forced into the informal sector — the jobs hardest hit by the pandemic.

Two women sit in chairs, wearing face masks
Sri Lankan women chat after getting inoculated against the coronavirus in Colombo, Sri Lanka, in August 2021. (AP Photo/Eranga Jayawardena)

The pandemic has also led to women and girls facing increased gender-based violence.

In Nepal, between March 2020 and June 2021, there was an increase in cases of gender-based violence. Over 1,750 incidents were reported in the media, of which rape and sexual assault represented 82 per cent. Pandemic lockdowns also led to new vulnerabilities for women who sought out quarantine shelters — in Lamkichuha, Nepal, a woman was allegedly gang-raped at a quarantine facility.

Gender-based violence is more prevalent among women and girls of low caste in Nepal and the pandemic has made it worse. The Samata Foundation reported 90 cases of gender-based violence faced by women and girls of low caste within the first six months of the pandemic.

What’s next?

While COVID-19 recovery efforts are generally focused on preparing for future pandemics and economic recovery, the women, peace and security agenda can also address the needs of some of those most marginalized when it comes to COVID-19 recovery.

The women, peace and security agenda promotes women’s participation in peace and security matters with a focus on helping women facing violent conflict. By incorporating women’s perspectives, issues and concerns in the context of COVID-19 recovery, policies and activities can help address issues that disproportionately impact most women in war-affected countries.

These issues are: precarious gendered labor market, a surge in care work, the rising feminization of poverty and increased gender-based violence.

A girl in a face mask stares out a window
The women, peace and security agenda can help address the needs of some of those most marginalized. (AP Photo/Niranjan Shrestha)

Policies could include efforts to create living-wage jobs for women that come with state benefits, emergency funding for women heads of household (so they can avoid taking out predatory loans) and increasing the number of resources (like shelters and legal services) for women experiencing domestic gender-based violence.

The impacts of COVID-19 must be incorporated into women, peace and security planning in order to achieve the agenda’s aims of improving the lives of women and girls in postwar countries like Nepal and Sri Lanka.

Luna KC is a Postdoctoral Researcher at the Research Network-Women Peace Security, McGill University. This project is funded by the Government of Canada Mobilizing Insights in Defence and Security (MINDS) program.

Crystal Whetstone does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.

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CDC Announces Overhaul After Botching Pandemic

CDC Announces Overhaul After Botching Pandemic

After more than two years of missteps and backpedaling over Covid-19 guidance that had a profound…



CDC Announces Overhaul After Botching Pandemic

After more than two years of missteps and backpedaling over Covid-19 guidance that had a profound effect on Americans' lives, the Centers for Disease Control (CDC) announced on Wednesday that the agency would undergo a complete overhaul - and will revamp everything from its operations to its culture after failing to meet expectations during the pandemic, Bloomberg reports.

Director Rochelle Walensky began telling CDC’s staff Wednesday that the changes are aimed at replacing the agency’s insular, academic culture with one that’s quicker to respond to emergencies. That will mean more rapidly turning research into health recommendations, working better with other parts of government and improving how the CDC communicates with the public. -Bloomberg

"For 75 years, CDC and public health have been preparing for Covid-19, and in our big moment, our performance did not reliably meet expectations," said Director Rochelle Walensky. "I want us all to do better and it starts with CDC leading the way.  My goal is a new, public health action-oriented culture at CDC that emphasizes accountability, collaboration, communication and timeliness."

As Bloomberg further notes, The agency has been faulted for an inadequate testing and surveillance program, for not collecting important data on how the virus was spreading and how vaccines were performing, for being too under the influence of the White House during the Trump administration and for repeated challenges communicating to a politically divided and sometimes skeptical public."

A few examples:

Walensky made the announcement in a Wednesday morning video message to CDC staff, where she said that the US has 'significant work to do' in order to improve the country's public health defenses.

"Prior to this pandemic, our infrastructure within the agency and around the country was too frail to tackle what we confronted with Covid-19," she said. "To be frank, we are responsible for some pretty dramatic, pretty public mistakes — from testing, to data, to communications."

The CDC overhaul comes on the heels of the agency admitting that "unvaccinated people now have the same guidance as vaccinated people" - and that those exposed to COVID-19 are no longer required to quarantine.

Tyler Durden Wed, 08/17/2022 - 12:22

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Why Is No One at Nike Working This Week?

And will the move gain broader acceptance among American employers?



And will the move gain broader acceptance among American employers?

You go into an office, pull at the door and find that it doesn't give and nobody's there. 

It may sound like the start of the common rushing-to-the-office-on-a-Saturday nightmare but, more and more, collective time off is being embraced by employees as part of a push for a better work culture.

While professional social media platform LinkedIn  (MSFT) - Get Microsoft Corporation Report and dating app Bumble  (BMBL) - Get Bumble Inc. Report had already experimented with collective time off for workers, the corporate ripples truly began with Nike  (NKE) - Get Nike Inc. Report.

In August 2021, the activewear giant announced that it was giving the 11,000-plus employees at its Oregon headquarters the week off to "power down" and "destress" from stress brought on by the covid-19 pandemic.

"In a year (or two) unlike any other, taking time for rest and recovery is key to performing well and staying sane," Matt Marrazzos, Nike's senior manager of global marketing science, wrote to employees at the time.

Nike Is On Vacation Right Now

The experiment was, not exactly unexpectedly, very well-received — a year later, the company instituted its second annual "Well-Being Week." Both the corporate headquarters in Beaverton, Ore., and three Air Manufacturing design labs with over 1,500 employees are closed for a collective paid vacation from Aug. 15 to 19.

"We knew it would be impactful, but I was blown away by the feedback from our teammates [...]," Nike's Chief Human Resources Officer Monique Matheson wrote in a LinkedIn post.

"Because everyone was away at the same time, teammates said they could unplug – really unplug, without worrying about what was happening back at the office or getting anxiety about the emails piling up."


Of course, the time off only applies to corporate employees. To keep the stores running and online orders fulfilled but not exacerbate the differences between blue and white collar workers, Nike gave its retail and distribution employees a week's worth of paid days off that they can use as they see fit.

Nike has tied the change to its commitment to prioritize mental health. In the last year, it launched everything from a "marathon of mental health" to a podcast that discusses how exercise can be used to manage anxiety and depression.

Rippling Through the Corporate World?

But as corporations are often criticized for turning mental health into positive PR without actually doing much for employees, the collective week off was perhaps the most significant thing the company did for workers' mental health.

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The practice of set office closures has long been common practice in many European countries. In France, not only corporate offices but even restaurants and retail stores empty out over the month of August for what is culturally considered sacred vacation time. 

But as American work culture prioritizes individual choice and "keeping business going" above all else, the practice has been seen as radical by many corporate heads and particularly small businesses that may find it more difficult to have such a prolonged drop in business. 

But in many ways, the conversations mirror some companies' resistance to remote work despite the fact that one-fourth of white-collar jobs in the U.S. are expected to be fully remote by 2023

"This is the kind of perk that makes employees want to stay," industry analyst Shep Hyken wrote in a comment for RetailWire. "And knowing they can’t completely shut the entire company down, I like the way they are compensating the distribution and retail store employees."

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