Janet Yellen’s game of Jenga

Jenga tower

Janet Yellen has a plan. The plan is to exit the ultra-loose policy of the Federal Reserve, and to do so very slowly and very carefully. And by slowly I mean very slowly. 2013, the last year of the Bernanke reign and the sixth year post subprime, was the central bank’s most generous if measured by level of interest rates and the expansion of the girth of its balance sheet: Fed Funds remained at 0.25 percent throughout the year, and through quantitative easing the monetary base grew by another $1,000 billion. Such largesse … [Read more...]

Forward Guidance? – Nonsense! Central bankers have no choice.

"Pioneer of guidance" Mark Carney

After two decades of serial bubble-blowing, the world’s central bankers have maneuvered themselves into a corner. They created a monster in the form of an unbalanced global economy and a bloated financial system, laden with debt, addicted to cheap money, and in need of constantly rising asset prices. Now the monster is in charge and the central bankers dare not stop feeding it. The US Fed did, of course, make some noises to the effect that the flow of cheap money may at some point slow and then even stop. How credible these … [Read more...]

End of QE? – I don’t buy it.

Ben Bernanke

A new meme is spreading in financial markets: The Fed is about to turn off the monetary spigot. US Printmaster General Ben Bernanke announced that he might start reducing the monthly debt monetization program, called ‘quantitative easing’ (QE), as early as the autumn of 2013, and maybe stop it entirely by the middle of next year. He reassured markets that the Fed would keep the key policy rate (the Fed Funds rate) at near zero all the way into 2015. Still, the end of QE is seen as the beginning of the end of super-easy … [Read more...]

Are central bankers losing control?

money symbols getting sucked into a vortex

The last couple of weeks have been very interesting. Remember that, certain regional differences aside, Japan has, for the past two-plus decades, been the global trendsetter in terms of macroeconomic deterioration and monetary policy. It was the first to have a major housing and banking bubble, the first to see that bubble burst, to respond with years of 1 percent interest rates, then zero rates, then various rounds of quantitative easing. The West has been following Japan each step on the way – usually with a lag of about … [Read more...]

Book review: David A. Stockman – “The Great Deformation – The Corruption of Capitalism in America”

Cover of David A. Stockman's The Great Deformation

David Stockman’s new book “The Great Deformation” is a brilliant, penetrating analysis of the present state of the US economy and the US political system, and a detailed account of how the nation got into this mess. The book will upset Democrats and Republicans alike, and quite a few other constituencies as well, which can, in this case, be safely accepted as proof that Stockman’s narrative is spot on. Stockman is an angry man and he admits so himself early in his 719-page tome. That anger adds bite and verve to his writing … [Read more...]

Gold sell-off: There is only one question that matters

gold

Last Friday I participated in a (very short) debate on BBC Radio Four’s Today Programme on the future direction of gold. Tom Kendall, global head of precious metals research at Credit Suisse argued that gold was in trouble, I argued that it wasn’t. So yours truly is on record on national radio on the morning of gold’s two worst trading days in 30 years arguing that it was still a good investment. Is it? I still think that what I said on radio is correct and even after two days of brutal bloodletting in the gold market and … [Read more...]

Bubble trouble: Is there an end to endless quantitative easing?

Ben Bernanke

The publication, earlier this week, of the Federal Reserve’s Federal Open Market Committee minutes of January 29-30 seemed to have a similar effect on equity markets as a call from room service to a Las Vegas hotel suite, informing the partying high-rollers that the hotel might be running out of Cristal Champagne.  Around the world, stocks sold off, and so did gold. Here is the sentence that caused such consternation: “However, many participants also expressed some concerns about potential costs and risks arising from … [Read more...]

The true significance of the $1 trillion coin

dollar sign sinking in sea

Under President Obama the debt of the United States government has grown by about 50%, and now stands at close to $16 trillion. Every year, the US government spends between $1.2 and $1.5 trillion more than it takes in. Every day that financial markets are open the US government has to borrow an additional $4 billion. The pathetic fiscal cliff ‘compromise’ of last week has proved the most cynical students of the political elite correct in that there is not a snowball’s chance in hell that Washington will ever get this under … [Read more...]

It’s a mad mad mad mad world

"Pioneer of guidance" Mark Carney

Shinzo Abe, Japan’s new prime minister, has some exciting new ideas about how to make Japan’s economy grow. How about the government borrows a lot of money and spends it on building bridges and roads all over the country? If that doesn’t sound so new, it is because it isn’t. It is what Japan has been doing for 20 years, and it is the main reason why Japan is now the most heavily indebted nation on the planet – and still not growing a lot. Its debt-to-GDP ratio stands at an eye-watering, world-record 230 percent, which … [Read more...]

Contra Richard Koo and the Keynesians: It is not about ‘aggregate demand’ but about real prices

dollar notes falling from sky

I do not want to waste your time and my energy with shooting down misguided Keynesian schemes all the time, schemes that have been refuted long ago and should by now be instantly laughed out of town whenever put forward. But arch-Keynesian Richard Koo’s latest attempt in the commentary section of the Financial Times to justify out-of-control deficit spending in the United States as a smartly designed and necessary policy that will keep ‘aggregate demand’ up and lead to recovery, is making the rounds on the internet. Koo’s … [Read more...]