Back in March, during one of his $250,000/hour speeches, Ben Bernanke said that he does not expect a rate normalization "during his lifetime [7]."
To be sure, there has been much debate of what is "normal" in a world in which central banks hold over 20% of the world's GDP on their balance sheets and where trillions in government bonds trade at negative rates. One attempt to capture the insanity behind such semantics comes this morning from Bloomberg's Richard Breslow who appears to not be in a very good mood after the holiday weekend, and who realizes the futility of trying to "renormalize" a world without constant central bank intervention.
Here is Breslow:
Nothing Normal About It
As we prepare to be prepared by Fed Chair Yellen for the oh-so long awaited first rate hike, it is probably well worth reminding ourselves not to use the word “normality” loosely. The U.S. economy is clawing its way back but is left with serious distortions and mis-allocations that make things feel less robust, and happy, than the aggregated numbers suggest. The global economy remains a mess, on the whole, so the Fed really will be going it alone.
In the history of tightening cycles we’ve never had a Fed so intent on hammering home the message that if anything goes wrong they will be quick to respond, backtrack and ensure financial stability (a term that has become a sorry euphemism for propping up stocks)
What is meant to soothe, should be having the opposite effect. In a “normal” world, a rate hike is meant to cool off the economy. In this case, it is equally motivated by the imperative to make monetary policy functional again. Does anyone seriously think they are worried about inflation getting out of control?
Of greater concern is that the focus on asset prices at the expense of the real economy, has desensitized markets from rationally (or even at all) responding to geopolitical events. When bad or dangerous events occur the weight of the consequences is borne solely by the non-financial community. Here we go again.
All global events have been reduced to monetary policy events, i.e., buy the dip opportunities. France’s CAC-40 sold off the two trading days before the recent horror. It was a solid buy the following Monday.
By always protecting risk-takers, the authorities are complicit in trivializing issues that need an all hands on-deck response. Bad news is good news has metastasized into an even baser concept
Raising rates will, hopefully, be a step in the right direction, but there is little that is normal as yet.
