European Central Bank

Paul Volcker and Alan Greenspan were the Elvis and Beatles of this movement – the first to see widespread fame for their efforts. Then came Ben Bernanke, perhaps the Jimi Hendrix or Led Zeppelin of his day, taking existing tools and pushing them in new, previously unconsidered, directions.  Now, we have Janet Yellen and Mario Draghi, whose legacies are as yet undefined. They may end up like the next generation of rock stars from the 1970s – something like Bruce Springsteen, with a deep focus on common people in his music. Or, they could be the Bee Gees, who focused simply on commercial success. Only time will tell.

The US Federal Reserve (Fed) and European Central Bank (ECB) have created a very dangerous situation. And it is one that few if any investors are assessing.

Over the last few months, in a prime example of currency failure and euro-defenders' narratives, Finland has been sliding deeper into depression. Almost 7 years into the the current global expansion, Finland's GDP is 6pc below its previous peak. As The Telegraph reports, this is a deeper and more protracted slump than the post-Soviet crash of the early 1990s, or the Great Depression of the 1930s. And so, having tried it all, Finnish authorities are preparing to unleash "helicopter money" to save their nation by giving every citizen a tax-free payout of around $900 each month!

And will Yellen keep yellin'?

Here is what really happened: the ECB tried to engineer a modest market selloff because the "market needed to be disappointed", coupled with a modest rise in the EUR to give the Fed some rate-hike breathing room. Instead the market's dramatic overreaction in stocks and FX forced Draghi to not only panic but to publicly come out and admit that the only purpose of his Friday speech was to offset the damage from his failure to defeat the opposition at the governing council and to send markets surging. Which they promptly did.

Draghi’s Friday talk of a “no limit” ECB balance sheet must have Weidmann and responsible members of the ECB at their wits end. It’s the nature of monetary inflations that there’s always a need for more. Throughout history, it’s been ‘just one more round of ‘printing’’ or ‘just one more year and then we’ll rein things in’. But things spiral out of control – and there’s a lot of currency with a lot more zeros. It can end in hyperinflation, at least when monetary inflation is afflicting the real economy. Today’s strange variety is inflating securities market Bubbles. It will end with Bubbles bursting and confidence collapsing. Integral to the bursting Bubble thesis is that policymakers are losing control. Granted, such analysis has about zero credibility when markets are in melt-up mode. But perhaps the markets’ response to Draghi is a forewarning.

Following yesterday's crash in the DAX, and historic surge in the Euro after an ECB announcement which many suggested was another central bank policy error, moments ago Mario Draghi did everything in his power to reverse said error, which in a speech in New York, he effectively doubled down on his "whatever it takes" posture, and said that not only is "QE there to stay", but could be "calibrated" if needed and the ECB can use "further tools" if needed. The result: a parabolic nove higher in the S&P which is now well higher than before yesterday's drop.

Keynes is dead – unfortunately his etatiste nonsense didn’t expire with him. Meanwhile, the long run is catching up with those who have so far failed to die.

There is a high hurdle following October's surprisingly strong gain of 271,000 jobs. On the other hand, Wall Street is confident we would have to see a significantly lower number, somewhere in the 100,000 range or even lower, — and weakness in other parts of the report, such as the unemployment rate, hourly wages and weekly hours — for the FOMC to postpone a rate hike into next year.

• The Jobs Report Probably Won't Change the Fed's Mind on Liftoff (BBG)
• U.S. authorities look for militant links to shooters in California mass slaying (Reuters)
• Neighbors, Acquaintances Shocked That Couple Are San Bernardino Shooting Suspects (WSJ)
• ECB Fumbles the Stimulus-Baton Hand-off, Mussing Up Fed’s Plans (WSJ)
• OPEC Heads for Status Quo as Members Clash Over Crude Output Cut (BBG)
• Foreigners drawn in as fear and loathing grip China's finance industry (Reuters)

Eighty-five years after the birth of French filmmaker Jean-Luc Godard, and the crude complex is acting suitably surreal today. As expected, rhetoric is ratcheting up out of Vienna ahead of tomorrow’s OPEC meeting, with the crude market shaken up like a snowglobe.

• Mario Draghi Is About to Become the World's Market Risk Manager (BBG)
• Five Things to Ask Mario Draghi From Negative Rates to QE (BBG)
• Leaving behind baby and bombs, couple sows panic in California (Reuters)
• Couple's motive in California rampage a mystery for police, family (Reuters)
• In Grim Ritual, Barack Obama Again Calls for Stricter Gun Control After Mass Shooting (WSJ)
• Islamic State Defeat Impossible Without Ground Force, Kerry Says (BBG)
• OPEC States Push for Output Cuts in Face of Saudi Opposition (BBG)

The EU’s political leaders and other elites are committed to holding the European Union together. To them, united Europe is an article of faith. They hold the idea with as much ferocity and fervor as any religious belief. But while the European Union is a wonderful political idea, it’s economically terrible. And the EU nations will have to face up to bearing enormous costs to save the Europe we wished for.

With the EUR plunging and everyone primed for dramatic action by Draghi, especially following today's disappointing inflation data where November CPI rose just 0.1%, below the 0.2% expected, the former Goldmanite may still disappoint. According to Market News, "the high bar set by expectations, coupled with notable opposition against aggressive action on the Governing Council as economic data developed largely as expected, creates a risk that the ECB will under-deliver Thursday."

The central banks are simply trapped. They have bought in bonds under the theory that this will stimulate the economy by injecting cash. But there are several problems with this entire concept. This is an elitist view to say the least for the money injected does not stimulate the economy for it never reaches the consumer. This attempt to stimulate by increasing the money supply assumes that it does not matter who has the money... The attempt to “manage” the economy from a macro level without considering the capital flow within the system is leading to disaster.