The high cost of the Fed's low rates

Today we are fortunate to have a guest contribution written by Joseph E. Gagnon of the Peterson Institute of International Economics. On June 20, 2012, the Federal Reserve System’s Federal Open Market Committee extinguished the last shred of doubt as to whether it intends to achieve its mandated objectives. Despite a substantial markdown of an already inadequate forecast, the Fed did not take any actions that would make it possible to achieve either of its objectives over the foreseeable future.

U.S. markets will be closed on Friday.  But it'll still be a busy week loaded with crucial information. Lots of members of the Federal Reserve will be giving speeches this week, perhaps offering clues as to what's next for monetary policy.

In April of 2010, Zero Hedge first brought up the topic of the Fed's DV01, or the implicit duration risk borne by the Fed's burgeoning balance sheet which at last check will approach 25% of US GDP by the end of 2013 (tangentially, back in 2010 the Fed's DV01 was $1 billion - it is nearly $3 billion now and rising fast).

The newspapers and TV channels reported the Dow 15,000 story last week as though it were just a stepping stone on the way to 16,000… or 20,000… or 30,000. Heck, the sky’s the limit! Investors have reached a new level of bullishness. They’re borrowing again to buy stocks, confident that prices go in only one direction. Advisers, too, seemed sure that this was not the end of a trend, but the beginning of one. Just what you’d expect at a market top.

Submitted by Charles Hugh-Smith of OfTwoMinds blog, Lowering interest rate and making credit abundant doesn't make employers hire more workers.

(WASHINGTON) — The number of people seeking U.S. unemployment aid barely changed last week, and the average over the past month fell to a fresh five-year low. The decline in layoffs is helping strengthen the job market. Weekly unemployment benefit applications rose just 2,000 to a seasonally adjusted 336,000, the Labor Department said Thursday. Over the past four weeks, applications have dropped by 7,500 to 339,750. That’s the lowest since February 2008, just three months into the recession.

(WASHINGTON) — The number of people seeking U.S. unemployment aid barely changed last week, and the average over the past month fell to a fresh five-year low. The decline in layoffs is helping strengthen the job market. Weekly unemployment benefit applications rose just 2,000 to a seasonally adjusted 336,000, the Labor Department said Thursday. Over the past four weeks, applications have dropped by 7,500 to 339,750. That’s the lowest since February 2008, just three months into the recession.