In this week’s Off The Cuff podcast, Chris and Axel Merk discuss:
- The latest developments in the repo market
- Why the Fed should do less, not more
- The concern of an overheating economy
- The Saudi strike showed the world is much less safe than we all thought
Axel explains how the Fed is intervening to quell the recent troubles in the overnight repo market. And while that issue highlights weakness in one corner of the economy, he also sees a risk of it overheating should a trade deal with China be reached by the end of the year.
This is why today’s environment is so maddening for those trying to make sense of it. There are so many crosscurrents working at odds right now, it’s very challenging to know which direction will win out, and for how long:
If you look at the transmission mechanism in the U.S., it is working just fine—thank you very much. Banks have access to credit and businesses have access to credit. There is no need for an interest rate cut.
There are exceptions, of course, like in fracking — some people that have completely unsustainable business models, they can’t refinance. But 0% rates don’t help on that either. And so those companies have just stayed around much longer than they should have.
So if you ask me what the Fed should do, they should check whether the money flows into the economy to where there is demand.
by travissidelinger