This page has been archived and commenting is disabled.
Stephen Roach: "The Fed Has Set The Market Up For A Crisis"
“The Fed is in total denial. It hasn't learned the lessons of what it put the world through a decade ago,” Stephen Roach said, back in January.
“I just go back to 2005 and 2006 where the Fed was so incremental in normalizing rates during a time of enormous froth in property markets, equity markets, credit markets and ultimately that led to huge distortions in the real economy and finally when the bubbles popped, the whole house of cards came down,” he added.
Eleven months later and the Fed is just now getting around to an “incremental” (and if Roach thought past episodes of FOMC policy normalization where “incremental” just wait until he sees the trajectory this time around) hike.
Ahead of tomorrow’s oh so critical Fed decision (which may or may not trigger some kind of dramatic meltdown in EM), Roach is out with some fresh commentary on the Fed, the FOMC’s role in creating asset bubbles, China, and commodities.
“They pushed interest rates down to zero in the depths of the crisis, the crisis ended and they kept the policy rate at an emergency setting,” Roach told Bloomberg TV’s Angie Lau in an interview, bemoaning the fact that the world has been stuck in ZIRP for so long that nearly a third of Wall Street has never seen a rate hike.
The effect of this is and has always been the creation of asset bubbles. As Jeremy Grantham put it earlier this year, “in the Greenspan/ Bernanke/Yellen Era, the Fed historically did not stop its asset price pushing until fully- fledged bubbles had occurred, as they did in U.S. growth stocks in 2000 and in U.S. housing in 2006.”
Now back to Roach. “That [lower for longer rates] is a breeding ground for asset bubbles, credit bubbles, and all-too frequent crises, so the Fed is really a part of the problem of financial instability rather than trying to provide a sense of calm in an otherwise unstable world.”
Right. And you can clearly see this from the following chart via RBS’ Alberto Gallo (note the ever larger swings in the financial cycle):
When it comes to creating speculative excess, it's almost as though the Fed has an unspoken third mandate.
Here’s Roach driving the point home: “While Fed did a great job in reacting to global financial crisis, it played an equal role in setting markets up for the crisis by running uber-accommodative monetary policy.”
He goes on to discuss China which he says “can’t be emphasized enough.”
Beijing’s epochal shift from an investment-led, smokestack economy to a consumption and services-driven model is something many market participants still don’t understand - or at least not fully, he says. “Commodities are, after a super-cycle, obviously going the other way, big time,” Roach said. Some companies “are in denial that China is changing its character, its structure. It’s going to take a while for that to sink in, and until it sinks in, there’s still downward pressure on commodity markets and prices.”
More in the interview below.
»
- 43 reads
- Printer-friendly version
- Send to friend
- advertisements -
Hey Stephen, go work for a living you useless fuck.
shut up bitch!
Fed and other fiat currency regime is regularly rely on crisis for excuse to shave sheep even more close, and on ocassionally is make war to leed sheep to slaughter.
The sheep have been shorn too frequently and will freeze to death in the coming winter, so now they're trying to shear the pigs instead. So far... lottta squealing, not much wool.
Michael Snyder ~
http://theeconomiccollapseblog.com/archives/this-is-what-a-financial-cri...
But the graph says we are at the bottom and NOT the top of the financial cycle... WTF?!
...and what is the LHS scale supposed to be anyway?
No, not intentionally.
You give them more credit than they deserve, by far. They cna make all the claims they want, but they are witchdoctors chanting and blowing smoke.
Nobody can control it, but they always think they can this time, especially when the politicians cover for them and they and all their friends get rich. Looks like 'working' to them, nobody tells them otherwise who counts a jot, and when it so unexpectedly fails they don't lose much and the lecture circuit continues until it is time to write memoirs, and some years afterwards as tehir connection to power recedes.
The only thing different this time is, we at the Fraudurel Reserve plan to accompany our tiny rate hike by a trillion $ of new buying of SP500 futures.
This way, we send the same message we sent when the U.S. Debt was downgraded and we ran-up the bond market, that the market loves rate increases and credit downgrades!
and that there is nothing we can't do as long as we control the printing of the U.S. fiat dollar. and I mean, nothing.
The more perverse the conditions we make, the more extreme measures we have to take to prop-up the overleveraged mess we have created. According to our models, we can keep this Hindenburg market alive at least another year, by then I will be retired and giving speeches like my Benjy Shalom. hahaha!!!
"there is nothing we can't do as long as producers around the world are forced to accept our promises in exchange for the very real fruits of their labor." - fixed it for you.
Bingo. Create the problem then offer a solution that merely helps out your mates, sell to the sheep then once that fails do it again because the press won't bother investigating what happened. Repeat until you are your buddies have all the money.
Everyone on this site knows full well what ZIRP and QE were really introduced to do but the sheep will cheer it on again come the next crash.
Yup. And as we all know, there is NEVER one Roach.
Roach is wrong. The whole thing is political and Keynesians are democrats.
Keynesian is economic study for person of emotional disregulation.
"Keynesians are Democrats" Smart enough to read ZH, yet stupid enough to believe the Team Red/Blue bullshit.
Online lenders don't think a rate hike will harm them at all LOL
http://www.wsj.com/articles/online-lenders-brace-for-a-fed-interest-rate-increase-1450212307
Even most bank CEO's are under some delusion that higher rates will help the sector.
If I hear "slope is a Banker's friend" one more time...
If I hear "slope is a Banker's friend" one more time...
"the sacred cow is growth
to support the debt system,
hence zero interest rates;
it works until it fails.
you can't stop the tides."
naked swimmer
I remember when the Roach used to send out endless Commie Propaganda about how wonderful the Chinese economy was doing...
Roach is bearish????
You don't say.
A third of Wall Street? Really? How much of "Wall Street" has been replaced since the last crisis anyways? I haven't heard of a lot of financial sector hiring, but there's been some downsizing.
Where is crocodile ...
(so lonely)
So Steven Roach needs yet another bailout? More subsidies to prop up his zombie "business"?
Maybe the reason he doesn't understand the economy is because he doesn't realize that most businesses have to pay taxes and support themselves -- not live off taxpayer subsidies
Job #1 for the un-fed is to do their stock holders bidding. It's all about w street always has been always will be.
They own the D.C. cesspool so no worries there.
Spineless fucks!
"Here’s Roach driving the point home: “While Fed did a great job in reacting to global financial crisis, it played an equal role in setting markets up for the crisis by running uber-accommodative monetary policy.”
What is it about (even old-timers like Roach), that occludes their vision regarding monetary distortions and what said distortions end up doing to markets and whole economies...?
it is a blue pill, slave mentality thing
that happens to work for a time for select groups.
that doesn't make it right or good or optimal.
not to mention it was designed by plundering
and murderous usurers at a time when the
"world", and all that encompasses, was an entirely
more cultured and compassionate place , in general
less contaminated by their proposed "money" system.
"When it comes to creating speculative excess, it's almost as though the Fed has an unspoken third mandate."
The Federal Reserve's sole true mandate is enriching Wall Street by stealing from Main Street.
• Abolish the Federal Reserve System;
• Hold banking stock and bond holders and banking executive officers completely responsible for the totality of losses even if it exceeds paid in capital and face value of bond holdings;
• Prosecute and severely punish the political parasites for accepting bribes (I.e., campaign contributions, honoraria, fees for speeches, free rides on Crony Capitalist Corporate jets, etc.),
• Prosecute Crony Capitalist Corporations and Oligarchs for paying bribes to the political parasites;
you have my vote.
Bush did this again !
“While Fed did a great job in reacting to global financial crisis..."
Bullshit.
What an appropriate last name.
Don't we have enough Wall Street Roaches?
Never bite the hand that feeds ya.
Agree. QE was working until 2011 when the Fed did not have the guts to cut it off.
The US could have had a different monetary policy and a different result.
http://michaelekelley.com/2015/03/27/the-kelley-monetary-policy-rule/
Here is how to prepare.
http://michaelekelley.com/2014/10/16/8-things-to-do-when-recession-happens/
Good to see it took so many years to figure this out.
Is that Roach like in Cockroach ?
I have always found Roach to be more possitive on China than he should be. To most of the world China's economy remains veiled behind a shroud and is far from transparent. Not only because China is far away from our shores, but the fact is their economy is very controlled by the government that acts as its puppet master and corruption has flourished. The bottom-line is we often have a difficult time getting real information on what is happening. To many of us it has become clear that China is in a situation similar to what America faced in 1929 following a period of rapid growth and credit expansion.
This is written not to diminish the accomplishments of China or to question their progress, but to point out much of what we have witnessed is the result of one time factors that have largely played out. Several factors have drastically changed politically, socially and from a military perspective since the days when America fueled China's growth. The article below titled, "China's Veiled Economy" highlights some of the reasons for doubting China.
http://brucewilds.blogspot.com/2015/12/chinas-veiled-economy.html
$20 bucks a barrel or bust.