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...]

Markets reject ‘forward guidance’ – for good reason

George Clooney at White House

The British media is obsessed with Mark Carney, the new boss at the Bank of England, who, this week, made his first public appearance as governor with a speech in Nottingham. There were adoring comments about his looks (the vague resemblance with George Clooney, supported with plenty of photographs) and his voice (deep, confident, reassuring), and as most journalists are more in awe of money and wealth than they are willing to admit, references to his generous pay package were also not missing. But there was also … [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...]

Roubini attacks the gold bugs

Nouriel Roubini

Earlier this month, in an article for “Project Syndicate” famous American economist Nouriel Roubini joined the chorus of those who declare that the multi-year run up in the gold price was just an almighty bubble, that that bubble has now popped and that it will continue to deflate. Gold is now in a bear market, a multi-year bear market, and Roubini gives six reasons (he himself helpfully counts them down for us) for why gold is a bad investment. Roubini does not quite go so far as to tell his readers that there is no role … [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...]

“But there is no inflation!” – Misconceptions about the debasement of money

Printed money

“But there is no inflation!” - This is a statement I hear quite often, sometimes from people who are, in principle, sympathetic to my arguments, sometimes from people who are less so. In either case, those who state “but there is no inflation” consider it to be a statement of fact and one that they assume must pose a challenge for me. Should the man who argues that we are heading for the collapse of paper money, for some kind of hyperinflationary endgame, not be concerned that all this money printing by central banks around … [Read more...]

Stimulus, to infinity and beyond

Ben Bernanke

There was a beautiful symmetry to last week's policy announcement by the Fed. Precisely a week after the ECB had pledged its commitment to unlimited purchases of Euro Zone government bonds, the Fed declared that its new round of debt monetization - 'quantitative easing' or QE3 - would be open-ended. Unlimited, open-ended. The concept of stimulus has certainly evolved since the crisis started. This should give us reason to pause. 'Unlimited' is not a word that is used much in economics or in business-life. The only thing … [Read more...]

More QE is on the way – The central banks are digging themselves a deeper hole

federal reserve

Dear readers, first of all, apologies seem in order. An unusual gap between blog posts has appeared on the Schlichter Files this summer. The reason is that I was travelling with my family in East Africa through most of August, enjoying the spectacular landscapes and the fascinating wildlife there, and meeting some very interesting people. Although, admittedly, I travelled in considerable comfort, and East Africa offers today reasonably good internet connections, often even in fairly remote areas, I decided not to read any … [Read more...]

Is gold in a bubble?

gold

To answer this question is not straightforward. As the gold-sceptics keep reminding us, gold pays no coupon and no dividend, it does not offer a running yield, so traditional measures of 'fair value' do not apply. But gold is money, and just as the paper ticket in your wallet does not pay interest, neither does gold. Gold is a monetary asset that has functioned as a medium of exchange and a store of value for thousands of years, around the world and in almost all societies and cultures. Many modern economists believe that … [Read more...]