Friday, November 15, 2013


Janet Yellen was just that yesterday delivering everything by chicken soup to a kind and gentle Senate committee.  A fine performance and one which will certainly get her nomination approved without too much fuss.

About the only bone of contention was the issue of how do you get yourself out of a $4 trillion balance sheet  without angst, and the answer seemed to be part "carefully" and part "trust me."  We do Janet, we really do, but I still feel very nervous because even with a lady this intelligent there doesn't see to be a full appreciation of just it is we are talking about in terms of the vast impact outside of our borders.  We are the reserve currency; every financial act around the world is beholding to the dollar and the monetary policy of the Fed.  They get it in an academic and theoretical sense but have they ever been in the midst of it when things begin to happen?  No, and therein lies the risk.  Markets are not theoretical and as they involve the actions of human beings they are not rational either.  The interconnectivity of multiple markets and varying outlooks makes tinkering, or even straight line progressions that seem logical to careen wildly out of whack based simply on a a minor difference in input in someone's trading book.  In order words, push the button and something is going to happen; we're just not always sure what.

But we're not going to have to worry about that for a while because the clearly will be no change in Fed policy for a while and that was reiterated again yesterday before the Senate.  All the central banks have the same hymnal and what a dull world it would be if it wasn't for the great north/south divide Over There which is getting wider and a bit more heated.  Today, some EU commission decided that Spain and Italy's budget for next year were not on and would have to be redone.  The reaction was as anticipated despite the authority had been granted at one of the grab-bag meetings in Brussels last year.  To comply looks like political suicide at this stage--and I emphasize "at this stage"--but this certainly throws a spanner in the works of what had been a rather calm fall season.  There is being formalized (as if needed) a very clear alignment of the north--Germany, the Netherlands and Austria against everyone else, with a good deal of jockeying going on around the periphery.  The yoke of Brussels is becoming even heavier and if one needed proof of that the Irish announced that they were going to go it alone, repaying what is needed owed to the Union at this stage and announcing that they had the wherewithal to handle future obligations ridding the country of oversight.  Now bully to them and the job they have done after making some egregious errors along the way, but they also announced that this is all going to happen without any standby facilities made available by the EU.  Some of my buds think the Irish have been drinking but there you are.  We are shifting Over There to a more political argument than a fiscal one, calling into question the raison d'etre for the whole thing anyway.  Frankly, I have been wrong in think that one would be seeing signs of a break-up by now but like The Leader, I must admit that once in a while I can get it wrong.  Unlike The Leader, I fear not for long.  Genug ist genug.

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