Risk? What Risk?

Fed chair Janet Yellen recently uttered what sounded to us like a stunningly clueless assessment of the potential danger the echo bubble represents. She indicated on the occasion that she was certainly in no hurry to raise the administered interest rate from its current near-zero level.

 

“I do not presently see a need for monetary policy to deviate from a primary focus on attaining price stability and maximum employment, in order to address financial stability concerns,” said Ms Yellen.

“That said, I do see pockets of increased risk-taking across the financial system, and an acceleration or broadening of these concerns could necessitate a more robust macro-prudential approach.”

[…]

“Because a resilient financial system can withstand unexpected developments, identification of bubbles is less critical,” said Ms Yellen.

 

(emphasis added)

Of course no Fed chair of recent memory has displayed even the slightest ability to recognize bubbles or to realize that they might pose a danger.

As to the remark about the “resilient financial system”, this is surely a joke. Does anyone remember how Fed officials and politicians (such as then treasury secretary Hank Paulson) were going on and on about the supposed ruddy health of the US banking system in 2007? Never had they seen the system in better shape than in 2007! By late 2008 it was close to complete collapse, but as they say, errare humanum est.

Don't get us wrong: we are not trying to dispense advice as to what the Fed should do. We would welcome its dissolution and the replacement of central monetary planning with free banking and a free market in money, but that's about it. We have no intention of recommending a “better plan”, given that we think there should be no plan at all (there are certainly different degrees of competence even among central planners, but that is beside the point; as previously noted, they are faced with an impossible task). We also certainly don't think that monetary policy should be turned over to politicians. That would be the one thing even worse than having a central bank.

We only want to point out that the capacity of monetary bureaucrats to learn anything from the events of recent years is at almost precisely the same level as the Federal Funds rate: namely zero.

We leave you with one more comment by the Chair (put the coffee down):

 

“Broad measures of credit outstanding do not suggest that non-financial borrowers, in the aggregate, are taking on excessive debt” 

 

Once you're done laughing, take a quick glance at the following charts:

 

Non-Fin corporate debtUS non-financial corporate debt – perhaps that's not “aggregate” enough? – click to enlarge.

 

total credit market debt vs. GDPThen consider the pièce de résistance – total US credit market debt vs. real GDP – click to enlarge.

 
Charts by: St. Louis Federal Reserve Research

 

 

 

Emigrate While You Can... Learn More

 


 

 
 

Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.

   

Bitcoin address: 12vB2LeWQNjWh59tyfWw23ySqJ9kTfJifA

   
 

4 Responses to “Janet Yellen Chimes in on the Bubble Question”

  • Hans:

    “Members of the Fed purposely lie to the public. They are in a conspiracy with other Fed governors, some of whom claim they want the Fed to hike sooner than later because they see potential asset bubbles and inflation problems. The whole thing is a setup to convince the public there is discord when there isn’t. They all realize there is an asset bubble, because no one could possibly be so stupid as to not see it. Yet, collectively they choose to ignore those bubbles even after the experience of the housing collapse, and in spite of what the BIS says.

    Yellen, Paul Krugman, and others live in academic wonderland, devoid of real world experience, and are incapable of recognizing asset bubbles, income inequality, and other problems caused by QE, low interest rates, and monetary printing.”

    Read more at http://globaleconomicanalysis.blogspot.com/#ya106VOqK9ybW8AB.99

    Mr Pater Tenebrarum, Mish, read your article with approval, may I say!

  • Hans:

    As reported in Barron’s this week.

    The BIS or Bank for International Settlements (Central Bank
    for Central Bankers) warned that the “euphoric financial markets
    have come unhinged from economic reality.”

    The Bank of Yellen response, was to reject the advice from the BIS
    to begin the rise in short-term interest rates, before an IMF meeting.

    They are going to do what previous FBR has done, wait and see and
    then react..

    They know they do not know what to do.

  • kcst1300:

    Pater, good article I wish more analysts would focus on the world balance sheet. That said, your metrics are flawed. You should use nominal GDP instead of real GDP. The reason you should use nominal GDP is the Debt is in nominal dollars therefore apples and apples. If you’re going to use real GDP then you need to inflation adjust the debt.

    Nominal GDP to nominal Debt is a metric that I keep a close eye on and even using nominal vs. nominal it’s clear that we have substantially more debt to service now that we did 30 years ago:
    1980 1.6
    1985 1.9
    1990 2.2
    1995 2.3
    2000 2.6
    2005 3.1
    2010 3.7
    current = 3.5

    All this info come from the St. Louis Fed and goes back to 1949. Between 1949 and 1980 debt to GDP was stable between 1.4 and 1.6.

    This high level of debt is OK until it isn’t and there’s no way you or anyone can predict when this will come apart, it could go on for years. We are one major world event away from a financial market melt down. The “beautiful deleveraging” that Ray Dalio is predicting may happen but I don’t think so. Stay nimble my friend.

    • Hans:

      1300, nice stats!

      I am sorry but I can not take this Chairwomen seriously
      in any fashion…

      She will be a disaster, even worse than Bank Bernank.

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • Punch-Drunk Investors & Extinct Bears, Part 1
      The Mother of All Blow-Offs We didn't really plan on writing about investor sentiment again so soon, but last week a few articles in the financial press caught our eye and after reviewing the data, we thought it would be a good idea to post a brief update. When positioning and sentiment reach levels that were never seen before after the market has gone through a blow-off move for more than a year, it may well be that it means something for once.   Sloshed as we are...   a...
  • Why You Should Embrace the Twilight of the Debt Bubble Age
      Onward Toward Default People are hard to please these days.  Clients, customers, and cohorts – the whole lot.  They’re quick to point out your faults and flaws, even if they’re guilty of the same derelictions.   The age-old art of assigning blame – in this case complemented by firm knowledge of the proper way to prosperity (see lower right corner). Jack Lew not only sees the future with perfect clarity these days, he also seems to have spent his time as treasury...
  • Quantum Change in Gold Demand Continues - Precious Metals Supply-Demand Report
      Fundamental Developments In this New Year’s holiday shortened week, the price of gold moved up again, another $16 and silver another 29 cents. Or we should rather say the dollar moved down 0.03mg gold and 0.03 grams silver. It will make those who borrow to short the dollar happy...   Let’s take a look at the only true picture of the supply and demand fundamentals for the metals. But first, here are the charts of the prices of gold and silver, and the gold-silver...
  • As the Controlled Inflation Scheme Rolls On
      Controlled Inflation American consumers are not only feeling good.  They are feeling great. They are borrowing money – and spending it – like tomorrow will never come.   After an extended period of indulging in excessive moderation (left), the US consumer makes his innermost wishes known (right). [PT]   On Monday the Federal Reserve released its latest report of consumer credit outstanding.  According to the Fed’s bean counters, U.S. consumers racked...
  • Punch-Drunk Investors & Extinct Bears, Part 2
      Rydex Ratios Go Bonkers, Bears Are Dying Off For many years we have heard that the poor polar bears were in danger of dying out due to global warming. A fake photograph of one of the magnificent creatures drifting aimlessly in the ocean on a break-away ice floe was reproduced thousands of times all over the internet. In the meantime it has turned out that polar bears are doing so well, they are considered a quite dangerous plague in some regions in Alaska. Alas, there is one species of...
  • 2018: The Weakest Year in the Presidential Election Cycle Has Begun
      The Vote Buying Mirror Our readers are probably aware of the influence the US election cycle has on the stock market. After Donald Trump was elected president, a particularly strong rally in stock prices ensued.  Contrary to what many market participants seem to believe, trends in the stock market depend only to a negligible extent on whether a Republican or a Democrat wins the presidency. The market was e.g. just as strong under Democratic president Bill Clinton as it was under...

Support Acting Man

Top10BestPro
j9TJzzN

Austrian Theory and Investment

Archive

350x200

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

 
Buy Silver Now!
 
Buy Gold Now!
 

Oilprice.com