Here We Go Again
Yesterday Fed vice chair Janet Yellen delivered a 'see no evil' speech, perfectly aligned with the Greenspan-Bernanke theory of central bank interventionism, which holds that central banks are not responsible for bubbles, cannot do anything against them, and that lastly, there are no bubbles anyway. Even if they are so glaringly obvious that aunt Emma and her blind dog can spot them.
In a brief summary of the speech's most important points, Marketwatch reports:
“Some investors are "reaching for yield" but there are no indications that these actions threaten the country's financial markets, said Federal Reserve Vice Chairman Janet Yellen on Tuesday. "I don't see pervasive evidence of rapid credit growth, a marked build up in leverage, or significant asset bubbles that would threaten financial stability," Yellen said in remarks at an International Monetary Fund panel on the financial crisis and monetary policy.
The Fed vice chair, who is a leading candidate to replace Fed Chairman Ben Bernanke if he leaves office when his term ends early next year, said the Fed continues to monitor developments closely. Yellen said she would rather address any potential bubbles with bank supervisory rules rather than with monetary policy, which she called a "blunt tool" for addressing stability concerns. Yellen said one lesson of the financial crisis for the Fed has been a greater focus on financial stability. Despite a lot of work, vulnerabilities still remain, Yellen said. "Thus we are prepared to use any of our instruments as appropriate to address any stability concerns," Yellen said.”
Right on – record issuance of junk bonds, the return of 'toggle' bonds ('payment in kind' bonds), soaring sub-prime car loans, near record high margin debt and the explosion in student debt – no signs of a credit bubble anywhere! It's all good! Meanwhile, the often talked about 'beautiful deleveraging' of the US economy currently looks like this:
It is the first 'deleveraging era' we have seen in which total credit market debt somehow manages to reach one new all time high after another.
As to Mrs. Yellen's failure to spot a credit bubble or any dangers in the current overextended market environment: that is par for the course. When was the last time a Fed bureaucrat spotted any dangers from Fed policy induced bubbles in real time? That has of course never happened. On the contrary, the more often one hears them give self-congratulatory speeches and the higher the incidence of laughter at FOMC meetings, the more dangerous the economic situation tends to be.
So we shouldn't be concerned about the current 'reaching for yield' episode. What then should we be concerned about? Hold on to your hat.
Not Enough 'Inflation'
We reported yesterday in an article on gold that ECB board member Benoit Coeure is getting worried about the ECB's nonsensical 2% annual 'inflation target' being undershot.
It turns out he's not the only one. Fed board members are also busy looking for new reasons to extend and expand their money printing program (we previously remarked on how such new justifications for more money printing have begun to be released in trial balloon fashion by e.g. Narayana Kocherlakota of the Minneapolis Fed).
The latest example is provided by 'sometimes hawk' John Bullard (the 'sometimes hawk' who has gone along with every expansion of the Fed's monetary pumping to date without demur). According to him, there is also 'not enough inflation' in the US. You couldn't make this up.
“Inflation might be too low and the Federal Reserve may need to respond, said James Bullard, the president of the St. Louis Fed Bank on Wednesday.
“Inflation is running very low,” as measured by the personal consumption expenditures prices index, Bullard said in a question-and-answer period after a speech at the Levy Economics Institute of Bard College.
“I’m getting concerned about that,” Bullard said, according to Dow Jones Newswires.
Bullard’s comments suggest a growing risk of deflation, a general decline in prices.
The implication is that the Fed will continue its easy-policy stance, and perhaps augment it with other steps, said Michael Moran, chief U.S. economist at Daiwa Securities America Inc. The Fed’s bond buying has been successful at keeping deflation at bay. It is designed to push down interest rates and boost asset prices, sparking demand that prevents prices from falling. The asset purchases also influences inflation expectations, Moran said.
Bullard didn’t suggest any move to a more-stimulative policy. But he said the low inflation rate gives the Fed “room to maneuver,” a suggestion that there is no need to hurry to slow down the Fed’s asset purchases.
Recall that we have said several times that there was not a snowball's chance in hell that there would be an 'exit' from 'QE Infinity'. In fact, although everybody agrees that the US banking system is somehow in 'great shape' all of a sudden, this is actually not true (more color on this in an upcoming post). In reality, the banks continue to sit on a huge mountain of legacy assets from the housing bubble that are now the subject of various 'extend and pretend' measures and can be easily glossed over via the new accounting rules introduced in 1009 (no more mark to market). Their profits are largely a chimera, as loan loss reserves are lowered.
The Fed of course doesn't tell us this, but we believe that it continues to be a major reason for the almost desperate monetization exercises. The goal is clearly to push the prices of collateral up again, so as to extricate both borrowers and bankers from the negative equity time bomb. No wonder then that Bullard worries about there not being 'enough inflation'. If you want to inflate away the real value of a huge debtberg, then a refusal of prices to climb fast enough must of course be of concern.
However, it is still strikingly absurd to make such claims about inflation being 'too low' in the face of the fact that the US broad true money supply TMS-2 has increased by nearly 80% since the 2008 crisis and has more than tripled (up 208%) since the year 2000. Apparently the Fed's movers and shakers are convinced that no negative long term consequences need to be expected from this astonishing pace of monetary inflation. Not even the evidence provided by the boom-bust sequences of recent years seems to have led to any soul-searching on the issue. Their recipe has been the same throughout this period and it remains the same: if there is a perceived 'problem', crank up the printing press. If the problem doesn't go away, crank it up more.
Lastly, it is utterly bizarre that a member of an organization that has been presented as an 'inflation fighter' in decades of propaganda is suddenly telling us that even more inflation is now needed.
It is that time of the year again – our semi-annual funding drive begins today. Give us a little hand in offsetting the costs of running this blog, as advertising revenue alone is insufficient. You can help us reach our modest funding goal by donating either via paypal or bitcoin. Those of you who have made a ton of money based on some of the things we have said in these pages (we actually made a few good calls lately!), please feel free to up your donations accordingly (we are sorry if you have followed one of our bad calls. This is of course your own fault). Other than that, we can only repeat that donations to this site are apt to secure many benefits. These range from sound sleep, to children including you in their songs, to the potential of obtaining privileges in the afterlife (the latter cannot be guaranteed, but it seems highly likely). As always, we are greatly honored by your readership and hope that our special mixture of entertainment and education is adding a little value to your life!
Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke
2 Responses to “Central Bankers Concerned About ‘Too Low Inflation’”
Most read in the last 20 days:
- A Striking Chart
The Economy and the Stock Market As long time readers know, we are always paying close attention to the manufacturing sector, which is far more important to the US economy than is generally believed. In terms of gross output it is the largest sector of the economy, and it should of course be obvious that saving, investment and production are the only ways to create wealth. What's left of the Brooklyn Domino Sugar Refinery. Photo credit: Paul Raphaelson Contrary...
- Trump and Putin Narrowly Escape Assassination Attempt
The Gloves are Coming Off First a little bit of recent history. Readers are probably aware that some questions about the occasionally malfunctioning Deep State android... no, wait, we'll start again. Questions have recently been raised about the health of presidential candidate Hillary Clinton by various “alt-right” tinfoil hat-wearing conspiracy theorists, such as this one. The monsters are normally hiding under Hillary's bed, but lately they have come out into the open...
- Donald’s Electoral Struggle
Wicked and Terrible After touting her pro-labor union record, the Wicked Witch of Chappaqua rhetorically asked, “why am I not 50 points ahead?” Her chief rival bluntly responded: “because you’re terrible.”* No truer words have been uttered by any of the candidates about one of their opponents since the start of this extraordinary presidential campaign! Electoral map (note that the coloration may no longer be applicable...) That Hillary Clinton is...
- Why the Fed Destroyed the Market Economy
What Have You Done for Me Lately? Swing voters are a fickle bunch. One election they vote Democrat. The next they vote Republican. For they have no particular ideology or political philosophy to base their judgment upon. The primacy of the wallet. They don’t give a rip about questions of small government or big government. Nor do they have any druthers about the welfare or warfare state. In effect, they really don’t care. What’s important to the...
- Janet Yellen’s Shame
Playing Politics In honest capitalism, you do what you can to get other people to voluntarily give you money. This usually involves providing goods or services they think are worth the price. You may get a little wild and crazy from time to time, but you are always called to order by your customers. In the market economy, consumers reign supreme. There is no such thing as a “lost” vote in the marketplace; every penny spent affects production. Mises noted: “Consumers...
- Get Ready for a New Crisis – in Corporate Debt
Imposter Dollar OUZILLY, France – We’re going back to basics here at the Diary. We’re getting everyone on the same page... learning together... connecting the dots... trying to figure out what is going on. The new three dollar bill issued by the Apprehensive States of America. We made a breakthrough when we identified the source of so many of today’s bizarre and grotesque trends. It’s the money – the new post-1971 dollar. This new dollar is green. You...
- The Economy, the Stock Market and the Fed
John Hussman on Recent Developments We always look forward to John Hussman's weekly missive on the markets. Some people say that he is a “permabear”, but we don't think that is a fair characterization. He is rightly wary of the stock market's historically extremely high valuation and the loose monetary policy driving the surge in asset prices. The S&P 500 Index and the NYSE advance-decline line. Most market internals weakened steadily until early February 2016, but...
- Hanjin Marooning in San Pedro Bay
Global Trade Reversal Expansions and contractions in global trade have played out over long secular trends for thousands of years. The Silk Road, for example, was established by the Han Dynasty of China in 130 BC, and allowed for continuous trade between East and West for nearly 1,600 years. In addition to economic trade, the Silk Road was also a conduit for culture and knowledge among its network of civilizations. A map of the main ancient Silk Road - click to...
- Great Causes, a Sea of Debt and the 2017 Recession
Great Cause NORMANDY, FRANCE – We continue our work with the bomb squad. Myth disposal is dangerous work: People love their myths more than they love life itself. They may kill for money. But they die for their religions, their governments, their clans... and their ideas. Famous French hippie and author Voltaire. He wears the same sardonic grin in every painting, whether he's depicted at a young or an old age, doesn't matter. His real name was François-Marie Arouet; he...
- The Donald Versus Killary: War or Peace?
War: A Warning from the Past Although history does not exactly repeat itself, it does provide parallels and sometimes quite ominous ones. Such is the case with the current U.S. Presidential election and the one which occurred one hundred years earlier. The Donald probably has the better slogan... The dominating question which hung over the 1916 campaign was whether the country would remain neutral in regard to the horrific slaughter which was taking place on the...
- A Rift in the Space-Time Continuum
Weird and Unnatural NORMANDY, France – First, a quick look at the markets. The Dow bounced on Monday, recovering 239 points of the nearly 400 it lost on Friday. Why the comeback? FOMC member Lael Brainard: her comments on Monday were touted as the “reason” for the stock market recovering half of Friday's losses. We suspect the real reason is the triple witching on Friday... Photo via twitter.com The financial press has a ready answer: “Stocks gain...
- Crimea: Digging For The Truth
Renewed Escalation This summer witnessed a renewed escalation between Russia and Ukraine after Russian President Vladimir Putin accused Ukraine of sending saboteurs to attack Russian troops, targeting “critical infrastructure”. Kiev denied the allegations and claimed Russia’s “fantasy” was nothing but a false pretense to launch a “new invasion”. August 10: Russian president Putin announces that there was an altercation involving a group of Ukrainian saboteurs at...