"The Fed is 'ever-interested' in doing something later," Jim Grant notes, explaining why he believes the timetable for rate hikes will be pushed back further as fear of allowing a free market in the "most critical" of prices - that of interest rates - would lead to the "unmasking of the misallocations of capital that will have come about through the levitation of asset prices." Grant further unleashes his verbal attack of truthiness when he points out that the central bank's persistent easy money policies is on display currently in the form of stifling American enterprise and sending millions of people from the workforce "more or less permanently."
The constant changes to Fed policy targets and enslavement to the ticker must change, according to former Fed Governor Kevin Warsh. "The markets think they have Yellen's number," that she will never allow markets to go down, Warsh warns "that is a very dangerous development." What worries Warsh the most, however, is "The Fed's policies changing based on what happens on the ticker... The Fed should be thinking 3 to 4 years ahead." Investors "think good times can last forever," he notes ominously, "we tried negative real rates in the mid 70s and the early 2000s and both ended badly." Someone is not getting invited back on CNBC...
Nearly 100 years after its creation, the power of the U.S. Federal Reserve has never been greater. Markets and governments around the world hold their breath in anticipation of the Fed Chair's every word. Yet the average person knows very little about the most powerful - and least understood - financial institution on earth. "Money For Nothing" is the first film to take viewers inside the Fed and reveal the impact of Fed policies - past, present, and future - on our lives. Join current and former Fed officials as they debate the critics, and each other, about the decisions that helped lead the global financial system to the brink of collapse in 2008. And why we might be headed there again...
Raging against its German creditors, the new Greek government is demanding reparations for Nazi-era depredations. Herewith - from Jim Grant’s archives - some timely context both for the Greek negotiating position and the underlying monetary issues.
"we venture that the SNB will sooner or later be forced to permit the franc to appreciate and thus to enrich the holders of low-priced, three-year call options on the Swiss/euro exchange rate. It's a long shot, to be sure--the options are cheap for a reason--but we judge that the prospective reward is worth the obvious risk." - Jim Grant, Sept 14th, 2014
Having previously reduced the world's predicament to two short paragraphs, Jim Grant has outdone himself with this holiday card this year...
It is truly amazing to see the contortions into which some analysts twist themselves, trying to make the historical facts fit their economic models.
Having recently given us a two paragraph synopsis of all that is wrong with our financial market faith in fed officialdom, Jim Grant unleashes his critical wit and insight on CNBC to explain the Fed's new remit, as Bill Dudley recently explained, "the administration of American equity prices." The Fed will find it difficult ro raise rates - both technically (for reasons we have explained in detail previously) and "they will find many blocks in the way having to do with financial markets' reaction." Simply put, the Fed wants to raise rates but mostly it wants peace and quiet, which it does not have: "The Fed is America's central bank but it is the steward of the world's currency," and as Grant concludes, "it is raining currencies around the world... and the Fed must be coginizant of that."
Every year, David Collum writes a detailed "Year in Review" synopsis full of keen perspective and plenty of wit. This year's is no exception. "I have not seen a year in which so many risks - some truly existential - piled up so quickly. Each risk has its own, often unknown, probability of morphing into a destructive force. It feels like we’re in the final throes of a geopolitical Game of Tetris as financial and political authorities race to place the pieces correctly. But the acceleration is palpable. The proximate trigger for pain and ultimately a collapse can be small, as anyone who’s ever stepped barefoot on a Lego knows..."
Just four charts to consider now that The Fed has stepped away, the Shale Oil miracle has been exposed for the debt-fueled mal-investment boom that it is, cold-weather is coming, and stock market bulls are forced to face some awkward truths...
"... we seem to have miscalculated..."
"Perhaps sooner rather than later, investors must recognize that modern day inflation, while a necessary condition for survival, is not a sufficient condition for increasing wealth at a rate necessary to satisfy future liabilities associated with education, health care, and a satisfactory retirement. The real economy needs money printing, yes, but money spending more so, and that must come from the fiscal side – from the dreaded government side – where deficits are anathema and balanced budgets are increasingly in vogue. Until then, deflation remains a growing possibility – not the kind that creates prosperity but the kind that’s the trouble for prosperity."
Central banks are printing rules almost as fast as they’re printing money. The consequences of these fast-multiplying directives — complicated, long-winded, and sometimes self-contradictory — is one topic at hand. Manipulated interest rates is a second. Distortion and mispricing of stocks, bonds, and currencies is a third. Skipping to the conclusion of this essay, Jim Grant is worried: "The more they tried, the less they succeeded. The less they succeeded, the more they tried. There is no 'exit.'"
“Hyperinflation and hyper-deflation are just two different forms of the same phenomenon: credit collapse. Arguing which of the two forms will dominate is futile: it blurs the focus of inquiry and frustrates efforts to avoid disaster.”
I think this is a time where people will look back on us and see it as a period of practically central bank worship. The central bankers – Draghi, Yellen, Bernanke – have become almost celebrities in America. People have invested unreasonable hopes in what these central banks can know, and what they can do. I think that, sooner or later, the investing public will become disillusioned of these ideas.... I dare say that stock prices will not continue to rise uninterrupted at the same pace. That’s not a very interesting prediction, but the stock market is certainly a cyclical thing. I think it’s fair to observe that today’s ultra-low interest rates flatter stock market valuations. Stock prices are partly valued based on a discounted flow of dividend income. To the extent that the discount rate you use to value that stream of dividend income, which depends on interest rates, is artificially low, stock prices are artificially high. I think that the burden of proof is on anyone who would assert that we are in a new age of persistently and steadily rising stock prices.