Central Banks

 

Planners Meet to Discuss the Impossible

The Jackson Hole pow-wow takes place this weekend. A more revolting get-together of actual and armchair central planners (i.e., the advisors to the planners, many of whom see themselves as planners-in-waiting) could hardly be imagined. One has to wonder how much more damage they will be allowed to inflict before someone finally says “enough!”. The parlous state of the global economy and the series of booms and busts we have experienced over the past 20 to 30 years are almost exclusively their doing (some of the responsibility has to be shared by politicians and other bureaucrats, who have hopelessly over-regulated and overtaxed economies, especially in the developed world).

 

fischer1Fed vice chairman Stanley Fischer, one of the keynote speakers at the Jackson Hole conference – more on him further below

Photo credit: Simon Dawson/Bloomberg

 

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A Rookie Market

TIVOLI, New York – The Dow plunged 588 points on Monday – a nearly 4% drop… and the second straight day of losses of more than 500 points. The rich made money on the way up. Now, they’re giving it back. About $250 billion has been erased from the value of the U.S. stock market in the last two trading days.

 

jason_20140827_2In the end, she will come through – they always do.

 

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Interest Rates Won’t Rise in 2015

The Janet Yellen Fed will not raise interest rates in any meaningful way anytime soon. Instead, she will announce new QE programs. On Wednesday, red was showing up just about everywhere – U.S. stocks, European stocks, Asian stocks, emerging markets stocks, crude oil… but it could have been worse…

U.S. stocks recovered some of their losses for the day, after the minutes of the most recent Fed meeting showed Yellen and team still won’t pull the trigger on a rate hike until certain unspecified conditions are met.

According to the Fed, the conditions for a rate increase are “approaching” but haven’t been met yet. Well, guess what… Conditions will never be met.

 

dudeThey’ll just drop in to see what condition our condition is in

Image credit: Ethan Coen

 

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A Lopsided Picture

As is well known, the US dollar has been the king of the hill in currency land over the past two years or so. Readers are probably well aware of the reasons: the US economy is considered to be doing best among world economies, the Fed is expected to soon hike rates from nothing to almost nothing and economic areas that are large exporters of commodities have seen their income from this sector shrink dramatically.

 

float

Image credit: lachaert & d’hanis

 

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A Sudden Trend Change

Earlier this year, inflation expectations – this is to say “expectations regarding the future rate of change of CPI” – rose sharply from a multi-year low posted right at the beginning of the year. In recent weeks this trend has reversed again rather noticeably.

 

infloImage via dallasfed.org

 

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Regulators are “Worried”- but it is way too Late

We have discussed the immense credit bubbles in Scandinavian countries in these pages several times in recent years. As it turns out, they have now become even bigger. The euro area debt crisis has had a number of side effects. One of them is that not only Switzerland, but also other countries in Europe outside of the euro zone have tried their best to keep their currencies from appreciating. This is based on the erroneous mercantilist notion that having a strong currency is somehow “bad”.

In Denmark the central bank’s benchmark lending rate has been stuck at minus 0.75 percent since February. Denmark’s households are incidentally the most leveraged in the world, with household debt amounting to over 530 percent of the country’s economic output.

 

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You Can’t Keep the Printing Press Idle for too Long …

We have recently portrayed Canada’s new central bank governor Stephen Poloz, to whom we have alternately referred to as a comedian and a delusional bubble blower. This may perhaps strike some readers as uncharitable; then again, central economic planning bureaucrats should be fair game, especially as nearly all of them are slaves to hoary inflationism and are apodictically certain to do grave damage to the economy, based on economic theories that at best deserve to be called a form of voodoo. It’s really that bad.

 

0715polozMr. Stephen Poloz, Canada’s new bubble-blower in chief, gazing into the distance – presumably in a futile attempt to divine the future.

 Photo credit: Adrian Wyld / The Canadian Press

 

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“The Man” is Playing with Fire 

 

businessman_cigar_money

Photo credit: Keystone

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Regime Change Option on the Table?

It has been clear from the beginning that Greece and its creditors were in a “Mexican standoff” situation. We already pointed this out shortly before Syriza won the election (see: Grexitology: A Mexican Standoff). 1. the “institutions” (formerly known as the “troika”) couldn’t possibly let Greece go, but could also not possibly give in and climb down from their demands and 2. Mr. Tsipras was in essentially the same situation; he couldn’t cross Syriza’s aptly named “red lines”, but defaulting and leaving the euro zone is likewise not palatable to him.

 

road closed

Moving too far to the left is unlikely to end well

Cartoon by Lisa Benson

 

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Poor, Forlorn, and Neglected

Neither stocks nor gold moved much on Tuesday… “Wait and see,” remains the order of the day. The Greeks, for example, have 48 hours to come to terms with their creditors. We wait to see what will happen.

We wait to see what happens in the bond market, too. Have bonds topped out? Hard to say …   For six years the Fed and other major central banks have made a bad situation worse.

By promising to keep the cost of carrying debt ultra-low, they have encouraged governments and businesses to add trillions of dollars in debt to an already debt-drenched economy.

 

abeShinzo Abe, armed with his three arrows. He has so far managed to pump up the stock market and stomp on the currency, but he the third arrow has yet to find a worthy target.

Image via The Economist

 

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