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The Great Medication: Sri-Kumar Blasts, "The Fed Has Been Wrong Everytime!"

Tyler Durden's picture




 

As Komal Sri-Kumar points out in this harsh (but fair) discussion of the Fed, (as Tim Iacono notes) the central bank’s abysmal track record on forecasting economic growth and how they have a fantastic track record for “taking the punch bowl away” far too slowly should worry all. "The Fed has been wrong every time on its growth forecast and overly optimistic," Sri-Kumar rants, adding that "the Fed is wrong in terms of its  benevolence to the markets." The current environment reminds him of early 2008 noting there are "lots of characteristics which are similar and it worries me a lot." Simply out, "they’ve had five years of quantitative easing, big bond purchases, quintupling of the Fed balance sheet. And we don’t have sustainable economic growth," but the great medication is not working, and "the remedy is that you have to take the shock."

 

 

Transcript with Bloomberg's Tom Keene:

Q: What was the key moment within the Janet Yellen news conference on Wednesday?

A: I think the key moment was at 2:47 pm. She essentially said the punchbowl is there and she’s simply not going to take it away. I don’t think they’re going to raise interest rates at the end of 2015 either because the Fed has been wrong every time on its growth forecast and overly optimistic. And as growth disappoints in the second half of the year, I think the rate increases are going to be postponed.

Q: Here is a quote from you after the FOMC meeting: ‘Why are we allowing supposedly ‘emergency measures’ introduced in 2008 to go into their seventh year? What will the Fed do when there is a true shock – increase bond purchases to 100 gazillion, to 250 gazillion?’ This was a substantial takeaway on what the Fed has gotten wrong. What’s the remedy right now?

A: The remedy is that you have to take the shock. You have to stop quantitative easing. You have to have a symbolic increase in interest rates. The Federal funds rate has to go up 1/4 or 1/2 a percent. It will cause a shock to the market. It will bring down equities. It will cause bond yields to rise. Take that medicine now or be prepared to take a much stronger medicine later on when the illness gets worse.

Q: Given the fact that we have unemployment at 6.3 percent, that’s good. We have inflation moving up in terms of the CPI, close to 2.1 percent, that’s good. Why is Yellen still keeping the punchbowl here?

A: She’s keeping the punchbowl because she’s worried about the long-term unemployed. She realizes that the 6.3 percent unemployment rate is largely because of the falling participation rate. She knows there is a lot of pain. And that’s where I think the change comes. That’s where I think the Fed is wrong in terms of its  benevolence to the markets.

Q: Is this a bull market you can believe in? Or is it a house of cards developed by not just Chair Yellen but BOE Governor Mark Carney and the other central banks?

A: That’s a great question. I would say this reminds me so much of the first half of 2008. Oil prices were very high and growth prospects were said to be doing very well and everybody was feeling very complacent about the overall in May and June. The ECB raised interest rates in July of 2008 thinking inflation was the major risk. We have lots of characteristics which are similar and it worries me a lot.

Q: You have been persistent in a call for subdued global economic growth combined with a little inflation. What do the optimists get wrong?

A: The optimists expect that the monetary growth, the quantitative easing, will produce economic growth at a rapid pace. Sometimes when you take a medication and it hasn’t worked for five years, you better change your medication. But that’s essentially the error with the optimists. They’ve had five years of quantitative easing, big bond purchases, quintupling of the Fed balance sheet. And we don’t have sustainable economic growth. Why not say you need a different medication? We started out with a zero interest rate in 2008 and we have evidence again and again from Robert Mandel, Milton Friedman, that monetary policy is ineffective at very low interest rate levels. The other problem is unemployment is becoming structural. That means long-term unemployment cannot be changed via monetary policy.

Q: What kind of short-term fixes are on the table?

A: I don’t think there are any short-term fixes. Especially after five years of not having done much. I’ll go one step further beyond fiscal policy. If you’re saying just spend more money and that will create jobs, we tried doing it in 2009 and 2010. It’s just not going to happen.

 

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Sat, 06/21/2014 - 11:24 | 4880478 Timmay
Timmay's picture

Close proximity to a nail gun might be the answer too.

Sat, 06/21/2014 - 11:32 | 4880492 RevRex
RevRex's picture

Bullshit, the FED has been RIGHT every time.....some still believe that the FED's job is to make the economy better for the average man.

Sat, 06/21/2014 - 11:48 | 4880527 headhunt
headhunt's picture

What is the Fed's job?

a) To drive the equity markets to forward PE of 30

b) Make the current administration look good

c) Rape some sheep and make them squeal

d) All of the above

Sat, 06/21/2014 - 13:03 | 4880677 RaceToTheBottom
RaceToTheBottom's picture

You forgot the FEDs main job description:  Mine the 99% for the benefit of the 1%.

Sat, 06/21/2014 - 15:40 | 4881000 Joe Sixpack
Sat, 06/21/2014 - 11:53 | 4880533 booboo
booboo's picture

"Bullshit, the FED has been RIGHT every time".."some still believe that the FED's job is to make the economy better for the average man"

You just failed deductive reasoning 101
You can BELIEVE in anything you choose but when iron clad evidence shows the opposite day in and day out you need put down the koolaid.

Tell us how the average man is doing under zirp and monitized debt policy and please spare us the "it would be worse if not" meme since that is the same argument that snake oil salesmen use to keep people buying their phony elixirs.

Sat, 06/21/2014 - 12:00 | 4880545 blacktusk
blacktusk's picture

 wow someone forgot to take thier obvious sarcasm pills today... I down voted you for the saturday morning stupidity.

Sat, 06/21/2014 - 12:14 | 4880576 booboo
booboo's picture

I down voted you because you used "wow" and "stupidity" in the same sentence. See how that works?

Sat, 06/21/2014 - 12:43 | 4880636 max2205
max2205's picture

The Fed nor the Govt care about you/us.....Just get over it and move on

Sat, 06/21/2014 - 13:22 | 4880708 blacktusk
blacktusk's picture

Separate sentences wienis. Don't worry, I will stop now.

Sat, 06/21/2014 - 14:31 | 4880854 yogibear
yogibear's picture

LOL, how did Bernanke's call on Subprime in 2008 not being a problem work out?

Larger and larger quantities of debt is constantly needed to pull out subsequent downturns. Their just trying to slow down the destruction. 

 

Sat, 06/21/2014 - 13:00 | 4880669 hairball48
hairball48's picture

@RevRex I'm assuming you left off /sarc

Sat, 06/21/2014 - 11:24 | 4880479 Bearwagon
Bearwagon's picture

So what?!

Sat, 06/21/2014 - 11:24 | 4880481 franciscopendergrass
franciscopendergrass's picture

Japan should be a cautionary tale and not the example to follow.  

Sat, 06/21/2014 - 11:25 | 4880482 BlindMonkey
BlindMonkey's picture

What do you do when you don't have any dry powder laying around? We are going to find out.

Sat, 06/21/2014 - 11:45 | 4880522 franciscopendergrass
franciscopendergrass's picture

Or a lot of dry powder that has gotten wet.

Sat, 06/21/2014 - 11:27 | 4880484 grekko
grekko's picture

"It’s just not going to happen."       Bingo!

Sat, 06/21/2014 - 11:33 | 4880494 NidStyles
NidStyles's picture

Basically the real capital which are productive assets, like bulldozers, are going to be scarce. So, if you have some commercial property you want to tear down, now might be the time to do so. The tools that are used to do that sort of thing might not exist in the near future. Welcome to third world status. 

Sat, 06/21/2014 - 17:09 | 4881177 Anusocracy
Anusocracy's picture

There are people in Detroit that do demolition for free.

Sat, 06/21/2014 - 11:41 | 4880507 Da Yooper
Da Yooper's picture

"Sometimes when you take a medication and it hasn’t worked for five years, you better change your medication."

 

A

 

someone correct me buttttttttt

 

isn't doing the same thing over & over & over again expecting a different result

 

the definition of

 

insanity?

Sat, 06/21/2014 - 11:48 | 4880528 wmbz
wmbz's picture

There is not one soul at the un-federal reserve that is in anyway connected to any type of real world reality. Delusional money printers nothing more, nothing less. When the system they are running blows up, they will not be held accountable in anyway, peroid. We get screwed, they walk away scott free.

Sat, 06/21/2014 - 15:31 | 4880974 Nick Jihad
Nick Jihad's picture

For some reason, we seem to be hoping for accountability from a bunch of tenured ivy-league professors, who are temporarily taking a job with the most unnaccountable institution in all of america.  It's hard to imagine anyone who is more insulated from the consequences of their misjudgements.

Sat, 06/21/2014 - 11:50 | 4880531 Reaper
Reaper's picture

The sheeple want to believe in good mastermind bankers. Yellin wants to believe she's a mastermind. The delusional have hope, while the others have fear.

Sat, 06/21/2014 - 15:34 | 4880987 Nick Jihad
Nick Jihad's picture

It's the nature of the business. Take two economists, and ask them "what will GDP growth be this year".  One answers "Experience shows that GDP forecasts are extremely unreliable",  and the other answers "2.67%".  One of these two needs to look for a new profession.

Sat, 06/21/2014 - 12:00 | 4880544 headhunt
headhunt's picture

What is the Fed's job?

 

a) To drive the equity markets to forward PE of 30

b) Make the current administration look good

c) Rape some sheep and make them squeal

d) All of the above

Sun, 06/22/2014 - 01:35 | 4880553 Chief Wonder Bread
Chief Wonder Bread's picture

Think of the economy as a series of trillions upon trillions of ongoing small experiments. From top to bottom this is the economy. Otherwise known as price discovery. Now go in and do a brain transplant and replace the brains at the top of the economy with a single Harvard, Yale or Princeton PhD. Heck, go ahead and make it a committee of such like-'minded' 'particular individuals' (as in the 'House of Particular Individuals' from Idiocracy). Now those millions upon millions of small experiments at the top of the 'ecomoney' have been replaced by one massive-ass ongoing experiment. This humongous experiment also has price discovery. But instead of getting the results day by day, week by week, quarter by quarter and year by year as the case may be, the results only come after a generation or two or three have passed. That's our present-day crony 'ecomoney'.

Sat, 06/21/2014 - 12:06 | 4880557 spanish inquisition
spanish inquisition's picture

The FED operates to the benefit of its oligarch employers. 

Sat, 06/21/2014 - 12:09 | 4880563 U4 eee aaa
U4 eee aaa's picture

So they can't say they weren't warned.......AGAIN!!

Sat, 06/21/2014 - 12:20 | 4880585 Quinvarius
Quinvarius's picture

They keep giving money to Jamie and Lloyd, but the public never spends it.  Where is the disconnect?  This will take a lot of hard thinking.

Sat, 06/21/2014 - 12:26 | 4880594 spinone
spinone's picture

Consider that FED actions have had exactly the effect intended.  Conside what the intended effect was, and for whom...

Sat, 06/21/2014 - 12:31 | 4880607 sunny
sunny's picture

So tell us something we don't know.

Sat, 06/21/2014 - 12:49 | 4880646 bankonzhongguo
bankonzhongguo's picture

The Fed is run by the banks for the banks.

What else is there to know.

"Full Employment" and "inflation control" are just a smoke screen.

Inflation is just institutionalized greed and an adjustment of local risk factors in response to unknown information.

The real intent is to simply keep the banks in power OVER the government and OVER all peoples.

That is it.

The current escape hatch is all this extra-legal protection via secret trade agreements, Basel III and the BIS. This is why you see such a massive consolidation of banks in the last 30 years.

Regrettably, until senior bankers and revolving door policy makers start being publicly assassinated on the 6 o'clock news, things won't turn around.

Good people forget that the banks make money by betting for AND against people.

If you are not reporting this reality, then consider yourself and your employer part of the fucking problem.

Sat, 06/21/2014 - 12:54 | 4880652 deflator
deflator's picture

 Another, "economist" trying to apply math to a political problem. Of course extend and pretend is the politically expediant thing for central bankers and governments around the world. What is the alternative, allow all the debt they created so they could get so powerful in the first place to collapse on itself giving that power back?

Sat, 06/21/2014 - 12:53 | 4880659 I Write Code
I Write Code's picture

 

That’s where I think the Fed is wrong in terms of its benevolence to the markets.

Not markets, banksters, and that my friends is exactly the problem.

Sat, 06/21/2014 - 14:15 | 4880820 Cthonic
Cthonic's picture

Mr. Keene, Robert Mandel is a film director, Robert Mundell is an economist, famous for, among other things, pointing out that interest rates do not keep up with inflation.

Sat, 06/21/2014 - 14:25 | 4880833 ceilidh_trail
ceilidh_trail's picture

MDB is that you?  @rev

Sat, 06/21/2014 - 14:26 | 4880845 Peter Pan
Peter Pan's picture

There is no fix any longer.
Only the destruction of human lives and economies awaits us.
Meddling with interest rates over such a prolonged period of time gave rise to a new paradigm shift which in turn spawned a series of paradigm shifts that are both unsustainable and damaging.

While most of the paradigm shifts have benefited one end of the spectrum, that same end of the spectrum will find itself gutted when reality re-asserts itself.

Sat, 06/21/2014 - 15:34 | 4880986 moneybots
moneybots's picture

"I think the key moment was at 2:47 pm. She essentially said the punchbowl is there and she’s simply not going to take it away."

 

85 billion now down to 35 billion.  The level of punch in the bowl is receding.

What has happened every time the FED ended a QE?  Why should it be different this time?

Sat, 06/21/2014 - 17:29 | 4881213 honestann
honestann's picture

SOLUTION
Everyone stop borrowing.
Individuals, corporations, governments.

Then whoever fails gets wiped out, and vanishes from existence.

Then recovery would come like gangbusters, with no new debt.

Wed, 06/25/2014 - 06:31 | 4892389 Otto Zitte
Otto Zitte's picture

I made your world that you complain about. I did it for my children, guest bitch parasite. My balls are not belongs to yuse.  

Sat, 06/21/2014 - 20:34 | 4881587 teslaberry
teslaberry's picture

the fed is not independent. it's not that they're forced to make sure only that the u.s. military can increase its budget to infinity. it's that u.s. and global oligarchs ALL hide their money off shore and they will not get hosed without first withdrawing their liquid money out of their markets and into their shelters. that has been already going on for some time now, but the trap door will not be shut until they say so.

and it just isn't time yet bitches....so enough about the fed. talking about fed 'policy' is philsophizing about a television commercial meant to play on your emotions and distract you from the underlying game at hand---which is not a game advertised on television.

everything for public consumption is meant to fuck anyone paying attention to it.

except possibly zerohedge. possibly.

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