"You don't need me to tell you that the developed countries, the US, Europe, Japan, are insolvent because of their long-term obligations."
That is merely one of the numerous punchlines uttered by Elliott Capital's Paul Singer, a long-term critic of Obama and failed socialist policies anywhere in the world, and of course, of the supreme enabler of destructive economic policies, Ben Bernanke and the Federal Reserve, during his interview with the WSJ's Gerald Baker at Heard on the Street Live earlier today.
Below are some other of Singer's musings which are largely in line for those readers who have been following our coverage of the hard-asset bull, and Fed fatalist's thoughts over the years.
On Confidence, the Future, and the Future of Confidence
"The future is something that is not something you can peer into from today. It will matter tremendously if confidence is lost. How can confidence be lost? Confidence can be lost in some combination of a rise in the price of commodities and gold, a consciousness of inflationary potential, a continued lack of accelerating growth, social unrest, and accelerating of QE. Forget tapering, I think tapering is off the table.
Considering the Japanese model: stable society, enough growth to keep people sort of happy, high savings, nobody really cares that they don't get a return on their savings: that's not necessarily where America and Europe are or will be."
Singer, who also noted that not once in 37 years has his hedge fund ever been able to predict future events, goes on to mock central bank "inflation targeting" principles saying a conversation focusing on specified inflationary thresholds is a conversation "that is possibly bereft of understanding of what happens when people may change their mind in a very significant way."
Singer observes that in discussing positioning for the future with investors in his fund, entities that cumulatively control "trillions in assets", nobody is positioned for inflation. His extrapolation is that the smallest change in behavior or perception - such as in May, June 2013 - when a slight change in perception that the "game of money printing was not accelerating" snowballed into a massive rate selloff, the result of which was that in September the Fed had to retract the very thing that it had leaked it would engage in, namely the Taper.
Crisis of fiat money
Next, Singer discusses about what is fundamentally at flaw - the current unsustainable monetary system - which itself is broken courtesy of what is now rampant, runaway currency debasement. The reason for the is that as a result of the terminal breakage of fiat's links with hard assets following Nixon's shuttering of the gold-dollar convertibility, "and after that it fell to central bankers, to the Fed, to maintain the demeanor, the policies, the words to give an impression of sobriety. And in the absence of any discipline in the numbers, because there is no discipline in the printing of the USD, that impression of sobriety is all that is standing between the holders of dollars and long-term holders of claims in dollars or any currency, and the oblivion of the purchasing power of their wealth."
Singer points out what most critics of the Fed are well aware of: that it was the Fed's low rate policy for a couple of years after the dot com bubble that resulted in the heads of the major financial institutions "kind of losing their heads in terms of their own balance sheets", the epic real estate and credit bubble and the great financial crisis of 2008; and fast forward 5 years later with the Fed once again keeping money sloshing around at effectively punitive rates (thanks to ZIRP and QE), and as a result "the conditions for a loss of confidence are here and now."
On Janet Yellen
Asked about where the head is taking the US, he notes that the "destination is not clear", and that if "somebody comes in who can exert the kind of disciple and sobriety that Paul Volcker did", then there is still some hope. Needless to say, the critic of easy money that is Paul Singer, does not think that Yellen is that person.
On what the Fed should (but certainly will not) do
I don't want to paint a picture of clarity about the workout of this thing. Because once a society, a financial system gets in a position of the central bank being trapped, and being unwilling or frightened of stopping this merry go round, things get very dicey. They may move to stopping the money printing, markets collapse, then they panic, go the other way, so the reaction of stock markets, bond markets, interest rates, the economy, once you get to a place where the gears are grinding, is very uncertain.... We are in a period where confidence should be jostled and it could be lost at any time for a variety of reasons, how this works out nobody knows.
There is one right thing to do right now: after five years of 0% interest rates, after $3.5 trillion here and several trillion sprinkled around the globe, this Fed chairman, the next Fed chairman, should say: "We've done enough. It is up to the president and Congress to remove the impediments for growth and provide the catalysts for growth, and help this country grow. The country is capable of growing at a far faster rate than it has been. And I think that the Fed, which is the only central bank which has a dual mandate, has embraced this dual mandate in a very harmful way because they actually revel in the role of being Atlas, holding up the world by themselves.
Full clip of prepared remarks below:
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Following the prepared remarks, Singer engaged in a debate panel, summarized by ValueWalk as follows. Singer says that the $50 trillion bond market is now basically controlled by central banks, with $15 trillion owned by the CBs. There is uncertainty as no one would know what would happen if this stopped regardless of how strong the economy is. Singer says QE ‘is gimmicky’ and an indirect solution, when a direct solution should be taken. Everyone has ideas on how to create growth. Very little of this has been pursued in the U.S., Europe or Japan.
Had these lists been pursued then you could say it’s time for QE’s grand finale. But because this was not done, recovery has been weak. Additionally, recovery has been unfair—only the rich have benefited.
Other panelists argue with Singer and ask—is the dual mandate wrong? Paul Singer says he is not a fan of the dual mandate but the issue is bigger. The Fed cannot/should not be solely responsible for economic growth. Through the Fed’s actions they have been an enabler of the problems in fiscal policy.
If you look at Fed minutes from 2004-2006, the Fed seems clueless about the financial system. Therefore, to rely on those people now is a bit foolish.
Sadly, the alternative to "those people" are those other people in Congress, whose stupidity has been enabled by the same people at the Fed, whose creeping take over of the world using monetary policy means has resulted in the peak impotence of the US fiscal apparatus and a Congress which is now, as is painfully evident, completely broken.