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

 

results 

Year-End Fund Raising Drive

Dear readers, our year-end funding drive has become a “beginning of the year funding drive” as we have yet to reach our target. By now you will be familiar with the many advantages a donation can secure for you, which range from sounder sleep, to children including you in their songs, to potentially obtaining privileges in the afterlife (no guarantees, but it seems highly likely). Lastly, a special thanks to all readers who have already made a contribution, we are greatly honored by your support.

   

Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke

   
 

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:

  • goldmine-700x360Gold and Gold Stocks – A Meaningful Reversal?
      A Negated Breakdown There have been remarkable gyrations in the gold sector lately. The typical rebound out of a November/December low (typical in recent years after the end of the tax loss selling period) was initially cut short in January in the course of the global stock market decline. This was a bit surprising, because it was widely held that the recovery in the gold price was a result of said stock market decline.   Photo via genius.com We suspect that in it was...
  • 1790_AssignatInflation-Spewing Dragon
      Dovish Cooing from the Desolation of Draghi As Reuters informs us, on the heels of Mr. Draghi's somewhat “disappointing” attempt to assassinate the euro on occasion of the previous ECB meeting, the chief European printing press supervisor and certified monetary crank has decided to assure everyone of his ultra-dovish stance again on Thursday, by announcing that even more monetary insanity must be expected soon:   “Fading growth and inflation prospects will force the European...
  • forgotten-heritageUS Economy – Slip-Sliding Away
      Economic Conditions Continue to Worsen It must be China. Or the weather, which is usually either too cold or to warm – somehow the weather is just never right for economic growth. Surely it cannot be another Fed policy-induced boom that is on the verge of going bust? Sorry, we completely forgot – the Fed is never at fault when the economy suffers a boom-bust cycle. That only happens because we have “too few regulations” (that's what Mr. Bernanke said after the 2008 bust – no...
  • sauvequipeutThe Bank of Japan – Ringing in the Endgame?
      Let's Do More of What Doesn't Work It is the Keynesian mantra: the fact that the policies recommended by Keynesians and monetarists, i.e., deficit spending and money printing, routinely fail to bring about the desired results is not seen as proof that they simply don't work. It is regarded as evidence that there hasn't been enough spending and printing yet.   BoJ governor Haruhiko “Fly” Kuroda: is that a windshield I'm seeing? Photo credit: Yuya Shino / Reuters   At the...
  • The Lost Ice CubeAn Ice Cube for Gulliver
      Panic! 9,000 Billion Tons of Ice Lost in Greenland! Have you ever wondered why they called that place up north “Greenland” instead of, say, “Whiteland”? The reason is that at the time humans first moved there, much of the place was in fact green....as it was a lot warmer than it is today, when allegedly, we are shortly all going to be roasted due to global warming (those living in coastal ares are supposed to drown before they have a chance to burn for their carbon footprint...
  • eyes-1The FOMC Decision: The Boxed in Fed
      An Imaginary Bogeyman What's a Keynesian monetary quack to do when the economy and markets fail to remain “on message” within a few weeks of grandiose declarations that this time, printing truckloads of money has somehow “worked”, in defiance of centuries of experience, and in blatant violation of sound theory? In the weeks since the largely meaningless December rate hike, numerous armchair central planners, many of whom seem to be pining for even more monetary insanity than the...
  • To Hell in a HandbasketTo Hell in a Handcart
      $5 Trillion up in Smoke POITOU, France – Pessimism is a sin against God, said money manager Charles Gave. It suggests ingratitude. And a lack of faith. After all, this is God’s world. What, not good enough for you? That’s why we are always optimistic at the Diary. Things don’t always go the way we would like, but they always go the way they should. Yes, the world may be headed to Hell in a handcart… but it’s for its own damned good!   Mild surprise down in hell...
  • hollandeHollande's Socialist Wonderland
      Everything's an Emergency If memory serves, France remains in a state of emergency on account of the terror attack in Paris in last November. As terrible as terror attacks are, they are a statistically insignificant cause of death and injury in developed nations. It is also worth noting that the countries that seem most prone to suffering terror attacks are the ones that are most active in intervening militarily in foreign countries. This is probably no coincidence. Just...
  • iceberg_ClevengerUnsound Credit and Risk Assets – How Serious is the Situation?
      Loan Losses and Rumors We want to briefly comment on recent news about a rise in loan loss provisions at US banks and rumors that have lately made waves in this context.   The iceberg – an excellent simile for what we know and what we don't know... or rather, what we don't know just yet. Image credit: Ralph A. Clevenger   First though, here is a look at the Philadelphia Bank Index (BKX) as well as its ratio to the S&P 500:   Investors seem increasingly...
  • Super-Tall ScrapersSkyscraper Mania Goes Global
      New Skyscrapers Wherever one Looks Readers may recall our recent discussion of the construction of the Jeddah Tower (see “Soaring to Bankruptcy” for details). This skyscraper is a typical symptom of an artificial boom that has moved past its due date, so to speak. The idea behind the skyscraper index is that in light of the immensity of projects that involve the construction of the tallest building in the world (or one of the tallest), they are only realized once the notion that boom...

Support Acting Man

350x200

Archive

j9TJzzN

Own physical gold and silver outside a bank

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]

 

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

 
Buy Silver Now!
 
Buy Gold Now!
 

Oilprice.com