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! We are happy to report that we have reached our turn-of-the-year funding goal and want to extend a special thank you to all of you who have chipped in. We are very grateful for your support! As a general remark, according to usually well informed circles, exercising the donation button in between funding drives is definitely legal and highly appreciated as well.

   

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:

  • tintedFree Money Leaves Everyone Poorer
      Destroying Lives BALTIMORE – A dear reader reminded us of the comment, supposedly made by Groucho Marx: “A free lunch? You can’t afford a free lunch.”   Groucho dispensing valuable advice Photo via imdb.com   He was responding to last week’s Diary about the national referendum in Switzerland on Saturday. Voters will decide whether to give all Swiss residents a free lunch – a guaranteed annual income of about $30,000 a year [ed note: the initiative was...
  • French labour union workers and students attend a demonstration against the French labour law proposal in Marseille, France, as part of a nationwide labor reform protests and strikes, March 31, 2016. REUTERS/Jean-Paul Pelissier/File PhotoHow the Welfare State Dies
      Hollande Threatens to Ban Protests Brexit has diverted attention from another little drama playing out in Europe. As of the time of writing, if you Google “Hollande threatens to ban protests” or variations thereof, you will find Russian, South African and even Iranian press reports on the topic. Otherwise, it's basically crickets (sole exception: Politico).  Gee, we wonder why?   They don't like him anymore: 120.000 protesters recently turned Paris into a war zone. All...
  • offendFree Speech Under Attack
      Offending People Left and Right Bill Bonner, whose Diaries we republish here, is well-known for being an equal opportunity offender  - meaning that political affiliation, gender, age, or any other defining characteristics won't save worthy targets from getting offended. As far as we are concerned, we generally try not to be unnecessarily rude to people, but occasionally giving offense is not exactly beneath us either.   The motto of the equal opportunity...
  • cameron-doomedMoving Closer to BREXIT
      Polls Show Growing Support for a Break with the EU In the UK as elsewhere, the political elites may have underestimated the strength of the trend change in social mood across Europe. The most recent “You-Gov” and ICM pools show a widening lead in favor of a UK exit from the EU as the day of the vote comes closer.   Pro-BREXIT campaigners Boris Johnson (ex-mayor of London) and Michael Gove (UK Secretary of Justice) are in a good mood. Photo credit: Paul Grover /...
  • water houseA Market Ready to Blow and the Flag of the Conquerors
      Bold Prediction MICHAELS, Maryland – The flag in front of our hotel flies at half-mast. The little town of St. Michaels is a tourist and conference destination on the Chesapeake Bay. It is far from Orlando, and even farther from Daesh (a.k.a. ISIL) and the Mideast.   St. Michaels, Maryland – the town that fooled the British (they say, today). Photo credit: Fletcher6   Out on the river, a sleek sailboat, with lacquered wood trim, glides by, making hardly a...
  • The-answer-is-yesToward Freedom: Will The UK Write History?
      Mutating Promises We are less than one week away from the EU referendum, the moment when the British people will be called upon to make a historic decision – will they vote to “Brexit” or to “Bremain”? Both camps have been going at each other with fierce campaigns to tilt the vote in their direction, but according to the latest polls, with the “Leave” camp’s latest surge still within the margin of error, the outcome is too close to call.   The battle lines are...
  • nails-in-a-bed-of-nails-new-yorker-cartoonGoing... Going... Gone! The EU Begins to Splinter
      Dark Social Mood Tsunami Washes Ashore Early this morning one might have been forgiven for thinking that Japan had probably just been hit by another tsunami. The Nikkei was down 1,300 points, the yen briefly soared above par. Gold had intermittently gained 100 smackers – if memory serves, the biggest nominal intra-day gain ever recorded (with the possible exception of one or two days in early 1980). Here is a picture of Haruhiko Kuroda in front of his Bloomberg monitor this...
  • MACAU, CHINA - JANUARY 28: Buildings of Macau Casino on January 28, 2013, Gambling tourism is Macau's biggest source of revenue, making up about fifty percent of the economy.What Could Possibly Go Wrong?
      A Convocation Of Gamblers The Wall Street Journal and BloombergView have just run articles on the shadow banking system in China.  This has put me in a nostalgic mood. About 35 years ago when I was living in Japan, I made a side trip to Hong Kong.   Asia's Sin City, Macau Photo credit: Nattee Chalermtiragool   I took the hydrofoil to Macau one afternoon and the same service back early the next morning.  On the morning trip, I am sure that I saw many of the...
  • queen_gold-840x501Rule Britannia
      A Glorious Day What a glorious day for Britain and anyone among you who continues to believe in the ideas of liberty, freedom, and sovereign democratic rule. The British people have cast their vote and I have never ever felt so relieved about having been wrong. Against all expectations, the leave camp somehow managed to push the referendum across the center line, with 51.9% of voters counted electing to leave the European Union.   Waving good-bye to...
  • tree removal permit-1The Real Reason We Have a Welfare State
      From Subject to Citizen BALTIMORE – June 5th, the Swiss cast their votes and registered their opinions: “No,” they said. We left off yesterday wondering why something for nothing never works. Not as monetary policy. Not as welfare or foreign aid. Not in commerce. Not never, no how. But something for nothing is what people most want.   The future Switzerland just managed to dodge... for now   The Swiss voted against awarding all citizens a “universal basic...
  • junkThe Problem with Corporate Debt
      Taking Off Like a Rocket There are actually two problems with corporate debt. One is that there is too much of it... the other is that a lot of it appears to be going sour.   Harvey had a good time in recent years...well, not so much between mid 2014 and early 2016, but happy days are here again! Cartoon by Frank Modell   As a brief report at Marketwatch last week (widely ignored as far as we are aware) informs us:   “Businesses racked up debt in the...
  • saupload_loves-me-loves-me-notA Darwin Award for Capital Allocation
      Beyond Human Capacity Distilling down and projecting out the economy’s limitless spectrum of interrelationships is near impossible to do with any regular accuracy.  The inputs are too vast.  The relationships are too erratic.   The economy - complex and ever-changing interrelations. Image credit: Andrea Dionne   Quite frankly, keeping tabs on it all is beyond human capacity.  This also goes for the federal government.  Even with all their data gatherers and...

Austrian Theory and Investment

Support Acting Man

Own physical gold and silver outside a bank

Archive

j9TJzzN

350x200

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