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Monetary Policy "Psy-Ops" - Why Central Bankers Should Be Seen And Not Heard
Submitted by Joseph Y Calhoun via Alhambra Investment Partners,
If the consequences for the economy were less important one couldn’t help but be amused by the predicament in which Janet Yellen finds herself today. She and her fellow Fed travelers have been “preparing” the market for a rate hike for nearly a year and now it is that very preparation that has kept them from hiking rates as planned. As I’ve said numerous times recently, talking about changing monetary policy is the same as changing policy in that it produces exactly the same response. So, as the Fed talked about a rate hike, the market raised the value of the dollar as if the hike had already occurred. The rise in the dollar created concern about the ability of emerging markets to service their dollar debts which caused capital to flow out and back to the US which further raised the value of the dollar and increased the concern about emerging markets, the cycle continuing until the Fed was forced to postpone the rate hike due to “international developments” which were caused by the Fed’s efforts to prepare the market for the rate hike they just postponed.
Ben Bernanke started the trend toward Federal Reserve transparency in the belief that demystifying the process would lead to more efficient, effective policy. Markets would be forewarned about future changes in policy, adjustments would be made incrementally and the economy would function more smoothly. Yeah, maybe in a textbook but reality has been a bit different. Forward guidance – who came up with that stupid phrase; what other kind of guidance could they provide? – turns out to be nothing of the sort absent an operating crystal ball. When the economy doesn’t perform as the Fed expects – and when has it ever? – because the Fed’s transparency policy has changed the market conditions that were supportive of the outcome the Fed originally predicted, they are forced to change direction, to change their forward guidance – policy – rather abruptly which was what they were trying to avoid with forward guidance. It is a fresh, circular hell from which there is no exit (with a nod to Dorothy Parker and J.P. Sartre).
And so we are left to ponder the significance of Ms. Yellen’s speech last week which many took to be a walk back of the previous week’s uber-dovish FOMC statement which she also certainly had a hand in composing. Whiplash is not supposed to be a feature of the new market friendly Fed but keeping an eye and ear on all of them as they galavant about the country providing forward guidance willy nilly to one and all whether it is needed, wanted or counterproductive is a full time profession that requires an in house masseuse. One pines for the day when central bankers were seen and not heard.
Certainly Ms. Yellen’s speech, a stemwinder with 35 footnotes and a slide show that purported to show the rationale behind a rate hike, was a rhetorical shock to the cervical spine for anyone who saw her press conference the week before. One can’t help but wonder if the length of the speech and its plethora of citations, footnotes and graphs actually undermined its effectiveness. It appeared to be more an effort to convince herself and the other members of the FOMC that a hike was warranted than to sway the market. If you are going to play these psy-op mind games with monetary policy you better think it all the way through and consider the response to the response as well as the message sent by your rhetorical body language. Maybe the next Fed Chair should have a degree in psychology with a minor in game theory.
As Yellen tries to show confidence in the economy by talking up a rate hike while also trying to keep said rate hike from being reflected in markets – yet – the markets move ahead, usurping her authority over interest rates and sending its own signals. And the message isn’t that the economy is improving right now. Credit spreads continue to widen as the fracking companies’ hedges expire and they face the real consequences of $45 oil. Smaller wildcatters and companies that service the frackers will soon be meeting with a banker under pressure from regulators to reduce risk. Will the fracking bust be enough to cause a recession? I’ve said consistently and repeatedly that I don’t know and I still don’t. But the damage goes far and wide through the myriad companies that benefitted from the boom from sand companies in Wisconsin to well drillers to truckers and railroads.
Inflation expectations continue to fall and the long end of the Treasury curve outperforms as deflation fears linger even as Yellen frets about the Phillips Curve implications of full employment (as if more people working caused inflation; what a strange view of the world that is). Meanwhile, gold is outperforming stocks over the last three and six months, an indication not that Yellen is right about inflation but rather that her fears about global growth are likely warranted and the market is starting to price in a Fed response. Rather than preparing the market for a rate hike the Fed might find itself behind the curve in preparing it for another round of some kind of easing.
One thing that might work in the stock market’s favor, at least short term, is market sentiment which has turned quite, well, non-bullish lately. I guess 14 months of no price appreciation does tend to sour the mood a bit but I find it interesting that the category leading the pack is now neutral or some other variation on that theme. The bull camp has certainly been depleted but ex-bulls can’t seem to go all the way and admit to bearish tendencies, as if it were some kind of social stigma. What is the contrarian play when a plurality is neutral? Flip a coin? But the market is quite oversold and just about any news that is interpreted as bullish could produce a surprisingly strong rally.
If that stock rally does come, one would probably be wise to remember that not a lot has changed in the last few weeks through this correction. Stocks are still highly valued – and earnings are, at best, stagnant – credit spreads are still widening, the yield curve is still flattening and our long term momentum indicator is still on a sell signal; momentum is shifting to long term Treasuries and gold. Changing those things is not going to be easy and I doubt whether anything the Fed does or says will change them in the short term.
The Fed’s policy of forward guidance and radical transparency is not working. It turns out that letting the market peer over its shoulder as it makes monetary policy sausage is, in some ways, worse than the opaque process that existed prior to the arrival of Bernanke and Yellen. It pulls back the curtain and shows the human, error prone side of the Fed. Every time the Fed’s dots move, it is an admission of failure and undermines the very confidence it was trying to inspire. Yellen could probably learn a thing or two from a previous Fed Chairman:
I guess I should warn you, if I turn out to be particularly clear, you’ve probably misunderstood what I said.
-Alan Greenspan
She might also benefit from another quote from Pogo and remember that it was satire:
Having lost sight of our objectives, we redoubled our efforts.
-Walt Kelly in the comic strip Pogo
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"Watch what they do, not what they say" --Person with common sense.
"Watch what we say, not what we do, and no ...that isn't 3 tons of gold behind me" --Goldman Sachs
We puts the voltages to the bankster testacles for true metals pricing discovery.
Coming to a bank near you soon.
Revealing the fraud that is monetary policy will boost confidence.
How else would they profit if they stayed silent? It is how they swing markets and those that know what will be said profit from it.
This Act (the Federal Reserve Act, Dec. 23rd 1913) establishes the most gigantic trust on earth. When the President signs this bill, the invisible government by the Monetary Power will be legalized. The people may not know it immediately, but the day of reckoning is only a few years removed. The trusts will soon realize that they have gone too far even for their own good. The people must make a declaration of independence to relieve themselves from the Monetary Power. This they will be able to do by taking control of Congress. Wall Streeters could not cheat us if you Senators and Representatives did not make a humbug of Congress... The greatest crime of Congress is its currency system. The worst legislative crime of the ages is perpetrated by this banking bill. The caucus and the party bosses have again operated and prevented the people from getting the benefit of their own government.
No wonder he has gone down in history as an anti-semite...
just you watch and see how wonderful things become in the run up to Christmas.... oh, the spending!
Then February will come.
Additionally doing nothing is tightening because the flows. Instead of reinvesting maturing treasuries in the bond market maybe they can buy E minis?
Fixed it For ya:
Monetary Policy Prosecutions: Why Central Bankers Should Be Incarcerated and Not Adored
They will announce an emergency rate hike along with QE4
Any Constitutional Lawyers on ZH? Or perhaps one of the Tylerses?
Typically, when cops beat the shit out of someone, you know, more than is necessary, if people sue in federal court its 42 usc 1983
https://www.law.cornell.edu/uscode/text/42/1983
'
Every person who, under color of any statute, ordinance, regulation, custom, or usage, of any State or Territory or the District of Columbia, subjects, or causes to be subjected, any citizen of the United States or other person within the jurisdiction thereof to the deprivation of any rights, privileges, or immunities secured by the Constitution and laws, shall be liable to the party injured in an action at law, suit in equity, or other proper proceeding for redress, except that in any action brought against a judicial officer for an act or omission taken in such officer’s judicial capacity, injunctive relief shall not be granted unless a declaratory decree was violated or declaratory relief was unavailable. For the purposes of this section, any Act of Congress applicable exclusively to the District of Columbia shall be considered to be a statute of the District of Columbia.
(R.S. §?1979; Pub. L. 96–170, §?1, Dec. 29, 1979, 93 Stat. 1284; Pub. L. 104–317, title III, §?309(c), Oct. 19, 1996, 110 Stat. 3853.)'
- anyway, perhaps its been tried and failed {?} but I wonder if anyone, especially libertarian groups, have ever tried to sue the Fed {or some entity coming under that rubric - like the banks are private corps, but the FOMC and board, I believe, is deemed part of the .gov - could be wrong}
But - point is - could someone, could Tyler, sue under that statute?
Seems like the right to interest-free public currency is baked into the Constitution, no?
just a thought.
jeez no bites?
I'm no lawyer or Const. scholar - but it seems like there could be something here.
Having to pay interest to private banks seems to directly conflict with the Constitution, the FRA of '13 n/w
Bankers do not produce anything. They skim off of others production. Parasites. The dude who makes donuts at a Dunkin' Donuts performs a more honorable task than any bankster.
Correct. Especially in a NIRP/ZIRP world where new money creation does not require any new or real collateral.
Bankers and financiers are in fact useless overcompensated middlemen between the printer/computer and the producer/consumer in the real economy.
Time to execute the middlemen. Will happen eventually all by itself.
Never mind. I thought this was a bondage thread.
That makes sense. Incompetent government agencies should hide their activities and deliberations so we can pretend someone knows what they're doing.
Sounds as good as any other chaotic irrational corrupt evil thing going on around us.
The most significant part of Yellen's speech was the TIA moment at the end - that scared a bunch of folks shitless - just what we need now, a change in Fed Chairperson...the rest of the sideways shuffle excess verbige and charts was just PhD bs, which the talken' heads took seriously, but the WTF moment at the end was a real message.
The Central Bankers should neither be seen nor heard. In fact, they shouldn't even exist.
We're talking here about who should properly manage a Medium of Exchange (MOE) process. Not only have Central Bankers improperly managed their MOEs, they've done it on purpose in a self serving way. They deliver 4% inflation claiming to be controlling for 2% when 0% is the obvious right number.
They don't even know what money is.
And the governments who put central bankers in place don't know that diddling the monetary system is not a policy option ... any more than diddling the governor on an engine is a policy option.
The MOE management process is not about the economy. It's about allowing simple barter trade to take place over time and space. The money is created and destroyed by traders (like you and me) ... not by governments (who are just deadbeat traders) and bankers (who are just highway robbers).
Monetary Policy "Psy-Ops" - Why Central Bankers Should Be Seen And Not Heard
The Central Bankers should neither be seen nor heard. In fact, they shouldn't even exist.
You beat me to it, withglee
Is the note a person issues abstract ("Billy Bob Bucks") or specific as to goods or services provided to bearer ("Three haircuts by Billy Bob")?
How is the type of good or service backing such a note to be properly valued by distant 3rd parties? How is it fungible or divisible?
What's to prevent each person from inflating his own currency or evading future redemption? Absent elaborate specifications and performance guarantees, why couldn't a person arbitrarily alter quality any time?
How could a planet with 7 billion people conduct business tracking all relevant valuation parameters amidst 7 billion distinct currencies?
If MOE fundamentally fails to solve the double coincidence of wants problem as effectively as a single money does, people will still use money, despite heavy government manipulations.
Is the note a person issues abstract ("Billy Bob Bucks") or specific as to goods or services provided to bearer ("Three haircuts by Billy Bob")?
Abstract ... just like the FRN we use everyday. The difference with distinction is in its creator. It is created by traders getting real documented authenticated trading promises certified. Many of today's FRNs are created by a government making a trading promise which is never delivered on. It's just rolled over ... and that is default. The vast number are created by traders like you and me promising to trade over time (for things like cars and houses). These certificates we know as money and are typically just records.
How is the type of good or service backing such a note to be properly valued by distant 3rd parties?
There is "no" good or service backing the note. It is a promise to return the notes and the MOE process itself that is backing the note. The counterparty is the process. The process guarantees the trade as explained now.
The certificates, once created and documented by a trader, circulate as the most valued object of virtually all simple barter exchanges. We call them money. They obviously represent "a promise to complete a trade".
This is evident by examining trade: (1) Negotiation; (2) Promise to Deliver; (3) Delivery. In simple barter exchange, (2) and (3) happen simultaneously on-the-spot. Money allows (2) and (3) to happen over time and space. It is therefore obviously "a promise to complete a trade".
The value is determined by the traders in Negotiation step (1). They are able to do this through experience. They know what they have to deliver to obtain a unit of certificate. And they know what they can obtain with a unit of certificate ... just like we do now with dollars ... and Europeans do with Euros. Since the certificates are universally accepted because inflation of the MOE itself is guaranteed to be zero (in a properly managed MOE process) the distance and time between the parties is of no import. Regardless of how these traders view the value, the trader creating the certificates is obligated to return the exact same amount of certificates as promised ... regardless of what goods or services they pertain to. Otherwise he defaults and that default is immediately recovered by interest collections of like amount.
What's to prevent each person from inflating his own currency or evading future redemption?
Before the trading promise, no money exists pertaining to the trade. And none exist after the trade. Thus there can be no inflation. Evading future redemption is default. Defaults are monitored by the process with precision and immediately met with interest collections. This assures that no money exists outside the in-process state of the trade. In advanced implementations it is an actuarial process just like insurance underwriting setting premiums in the face of claims experienced.
Absent elaborate specifications and performance guarantees, why couldn't a person arbitrarily alter quality any time?
Absolutely "all" traders creating money are doing it by written contract. That determines the attributes and details of the trade negotiated. In any trade (e.g. a house for 360 monthly payments), this is immediately verified. The buyer accepts the house and the seller accepts the money. The seller has now delivered. His part of the trade is done. The buyer is then only left to his own resources to "earn" enough money to return certificates as he has promised. There are no quality issues whatever beyond the quality of the money itself ... and that is guaranteed to be "perfect" (i.e. zero inflation) by the process.
How could a planet with 7 billion people conduct business tracking all relevant valuation parameters amidst 7 billion distinct currencies?
You're working with a flawed premise. Each individual trader is not dealing with his own Medium of Exchange. A very close model for reference is a mutual insurance company. It has many owners but they are all in the same claim pool. Countries (or private enterprises) instituting a properly managed MOE process all guarantee zero inflation (otherwise they wouldn't be properly managed). Thus, they can all value their certificates differently but the exchange rate between them would never change. For practical purposes, all would likely adopt an Hour of Unskilled Labor (HUL) as their fundamental unit. This doesn't vary over time or space.
If MOE fundamentally fails to solve the double coincidence of wants problem as effectively as a single money does, people will still use money, despite heavy government manipulations.
There is no "double coincidence of wants" problem. There are no government manipulations possible ... period. Any government manipulations would be taken by the process as default. The governments would be immediately saddled with interest collections. If they don't change their behavior, their interest load would drive them from the marketplace. Their trades could never be competitive thus it would be obvious in the negotiation stage that they would not be able to deliver. The trading promise would fail in Negotiation stage (1).
Note: Capitalism is not desireable nor necessary for a properly managed MOE process to operate. Communism doesn't apply to a properly managed MOE process either. If anything, we are dealing with Traderism here. It is absolutely silly to require that a trader making a promise to deliver must first find a saver to back his promise. It is absolutely silly for responsible traders who never default to incure non-zero interest load. It is absolutely silly for inflation of the MOE to be anything but perpetually zero everywhere.
I'm intrigued by this creative approach. But it seems like re-inventing the wheel, attempting to replace money with an alternative that is inadequate to the task that money performs. To be fair however, I'll just say I don't fully understand your proposed system.
There is no "double coincidence of wants" problem.
Life presents this problem. I am a lawyer who can provide legal services. I want chickens from a farmer who has no need of legal services but does need grain. Somewhere out there is a grain dealer who is in need of legal services. A common pool of circulating money invisibly coordinates this three-way exchange without any of us having to locate each other and specifically orchestrate it.
In fact money facilities inscrutibly complex zillion-way trades constantly opening and clossing with all parties oblivious to the multitudues of other participants. Those counterparties effectively include every other person on the planet participating in the global economy now and in the past.
Your medium of exchange process does not seem to involve any actual medium of exchange. At least, not one objectively defined and fungible, both indispensible requirements to providing this essential coordination service.
"An hour of unskilled labor" could be taken to mean countless, wildly different things. Its nature and value depend entirely on exactly who is peforming the labor, possessing what skills and abilities, exposed to what risks and working conditions, under what terms, in what geopgraphical location, at what time, for the benifit of whom. It is impossible to value this "hour of unskilled labor" at all absent all these specifications and more.
Moreover if such certificates can be issued by anyone as personal debt in unlimited quantity, recipients of this debt to value it above 0 must have individual credit assessments of not just the issuer but of all antecedent issuers of certificates whom the issuer is relying on to make good on his promise. Personal debt makes for a horrible medium of exchange precisely because it is not fungible and its peculiar, inherent, unknowable risk components leave it impossible to quantify or value in any precise or universal way.
Your medium of exchange process does not seem to involve any actual medium of exchange.
You are not correct. The Media of Exchange is "exactly" the same as we're used to with every "representative" object we have ever used (e.g. certificates, coins, records). We have "always" used these objects we know as money as one part of "virtually all" simple barter exchanges. The difference and distinction is in how the MOE is created and destroyed. And that difference means everything because it "guarantees" zero INFLATION of the MOE itself. And that's why it is the most valued object of simple barter exchange. It never loses value. It is freely available. Supply and demand for it are in perpetual perfect balance. It is universally accepted because of these characteristics. It's the process ... not the manager ... that makes this possible.
At least, not one objectively defined and fungible, both indispensible requirements to providing this essential coordination service.
Objectively defined: Objectively created by authenticated traders documenting their trading promises and quantifying them in the MOE units and getting them certified. The resulting certificates (records) then circulate as objects of simple barter. The trader, in the process of delivering on his trade, trades for these certificates and returns them as promised and they are destroyed. What's not objective?
Fungible: The certificates (records) can be parsed or combined in any way needed. Since they are the most valued object on one side of virtually every simple barter trade, they are mutually interchangeable. What's not fungible about it?
Again, the issue is the process. The issue is not the MOE.
"An hour of unskilled labor" could be taken to mean countless, wildly different things.
So can an inch, a pound, or a gallon.
It is impossible to value this "hour of unskilled labor" at all absent all these specifications and more.
It is also unnecessary. A trader exchanges his trading promise for some number of units of the MOE. He "spends" them into the economy. He trades goods and services and reclaims them from the economy. He then returns them as promised and they are destroyed. In the whole process, it is "his" perception and his alone that is important. While he is "spending" them, he remains conscious of what he must do to "earn" them back. No one else's perception is of import when it comes to his promise.
I suggested an hour of unskilled labor (HUL) as a unit of measure everyone can identify with all the time. And that perception doesn't change over time or space. What people are willing to trade in exchange for it does, but that's an issue for the trader. He decides what they're worth when he exchanges his promise for them. And he decides what they're worth when he exchanges his goods and services for them to reclaim and return them.
It's all a trader's perception and of no import to the process whatever. This is "exactly" where the Mises Monks go off the track.
Personal debt makes for a horrible medium of exchange precisely because it is not fungible and its peculiar, inherent, unknowable risk components leave it impossible to quantify or value in any precise or universal way.
Your indoctrination is total. You say a personal promise is worthless, but a bank or government promise has value. Yet, far and away, personal trading promises are delivered on the vast percentage of the time. Government promises are "never" delivered on. And bank promises are defaulted on with astonishing frequency.
Again, the issue is the process. The person making the promise must deliver. If he does, he enjoys zero interest load. If he doesn't, that default is immediately reclaimed with an interest collection. That means the trader has an interest load component on his later trades. That makes him less competitive and thus has to work harder to profit by his trades. At the limit, he is a total deadbeat and is ostracized from the marketplace by the process. Thus ... keeping a trading promise has value.
It's all about how the MOE is created. We are already a people who are totally satisfied to use an MOE as an interim simple barter exchange object to get what we ultimately want. The key is to stop the governments from counterfeiting it and the banks from stealing it in the form of "arbitrary" interest collections. That's exactly what the process I describe prevents.
This is certainly not rocket science.
BS. BS. BS. BS. BS. BS. BS.
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The more people recognize the federal reserve makes TERRIBLE estimates and takes DESTRUCTIVE actions, the sooner people will END THE FED.
The notion people SHOULD allow vicious human predators shred them and all producers to pieces FOREVER... for the sole benefit of human predators, is pretty much as vile an evil as any evil anyone could imagine or support. It is an evil that destroys the lives of all but the top 0.01% of the population for the sole benefit of the top 0.01%.
How could hiding such an atrocity be considered "good"?
Only by yet another human predator!