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Swamponomics: The Unintended Consequences of Perpetual Stimulus

Federal Reserve warns about QE, Apple shifts production, and jobless aid to expire.

The Federal Reserve released the minutes from its November Federal Open Market Committee (FOMC) policy meeting. It was not the most exciting meeting, considering that it left interest rates unchanged near-zero and maintained its aggressive bond-buying campaign. However, the language inside the minutes did reveal some interesting points of view inside the Eccles Building, suggesting that policymakers are aware of the long-term damage their unlimited quantitative easing campaign will have on the U.S.

Federal Reserve Stares into the Abyss

As the U.S. central bank discussed modifying its bond-buying push to faster support the economy, officials also deliberated asset purchases’ evolving role. At the two-day meeting, some members of the FOMC agreed that the Fed could lengthen the maturity of the bonds acquired. But they were candid about one thing: The amount of supply being pumped into the system by the Fed could lead to unintended consequences.

The Fed’s $120 billion-per-month MOABs might be nearing its limits, and this unprecedented expansion could spawn another bubble, especially in the housing markets due to the mortgage-backed securities (MBS) purchases. Are these concerns enough to force the Fed’s hand and begin to taper? Unlikely. The November powwow highlighted that the Fed plans to do whatever it takes to avoid substantial market meltdowns comparable to what happened in March.

Moreover, at the press conference following the FOMC meeting, Fed Chair Jerome Powell reassured markets and Washington that the central bank still has plenty of ammunition to rescue the economy.

This is one of the reasons why the Fed is the most dangerous institution on the planet. It has this level of god-like power that can make or break economies and financial markets. At least Treasury Secretary Steven Mnuchin recently took away a few hundred billion dollars from the Fed and its emergency lending facilities that would have, once again, added to the ballooning balance sheet.

Apple Takes A Bite Out of China

The greater migration from China to Vietnam continues? It is looking like some of the world’s biggest companies are saying goodbye, at least in part, to Beijing and finding greener pastures in markets like Vietnam and Thailand. It seems that the nation’s advantages are declining bit by bit.

Reuters published an exclusive report that confirmed Foxconn is relocating some iPad and MacBook assembly to Vietnam at Apple’s request. The iPhone maker is ostensibly attempting to diversify production to minimize the impact of the Sino-U.S. trade dispute.

The newswire reported that Foxconn is establishing assembly lines in the country’s northeastern Bac Giang province. The facility is expected to come online in the first half of 2021. The company is also set to produce television sets for Japan’s Sony Corp.

This comes after Taiwan’s Foxconn announced a $270 million investment to create FuKang Technology Co Ltd, a subsidiary that is targeted toward Vietnamese expansion.

Liberty Nation has reported on several occasions about the growing exodus of private businesses from China. From the trade war to the hit to its reputation from COVID-19, companies are fleeing Beijing. Vietnam has been the largest beneficiary, welcoming some of the world’s most celebrated brands, including Google, Samsung, LG, Nike, and Intel.

The Forgotten Man

The number of Americans filing for first-time unemployment benefits hit a five-week high of 778,000 in the week ending November 20. When you factor in the more than 311,000 people who applied for benefits under a temporary federal program that is set to expire after Christmas, the weekly initial jobless claims figure has yet to slide below one million. And that is troubling on many different fronts.

On December 26, several pandemic-related programs will expire unless policymakers intervene. This will result in millions of unemployed people witnessing their incomes slide sharply. The national average weekly benefit is $317, so you could only imagine how low it will be heading into 2021.

Some of these programs include the pandemic emergency unemployment compensation (PEUC) and pandemic unemployment assistance (PUA). The former is meant for individuals who have exhausted state benefits, while the latter is designed for self-employed Americans who do not traditionally qualify for state assistance.

For months, U.S. lawmakers have been at a standstill over another round of fiscal stimulus and relief. The debate has essentially come down to a few hundred billion dollars. The Democrats are championing a $2.2 trillion spending bill that adds new benefits, while Republicans propose $1.8 trillion in legislation that supports private businesses.

Treasury Secretary Mnuchin has indicated that he is meeting with Republican leaders and House Speaker Nancy Pelosi. Senate Minority Leader Chuck Schumer (D-NY) was supposed to meet with Senate Majority Leader Mitch McConnell (R-KY). But it is unclear if all these meetings have been fruitful or serve as another scene on the stage of political theater. Either way, Americans are in distress, thanks to the government decimating the economy over a virus that has a 99.97% survival rate.


Read more from Andrew Moran.

Read More From Andrew Moran

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