One bright day in the middle of the night,
Two blind boys got up to fight;
Back to back they faced each other,
Drew their swords and shot each other.
A deaf policeman heard the noise
Ran up and shot the two dead boys.
The Bank of Japan and the Federal Reserve Board met today. The above is the result. The BOJ decided that they would hold their 10 year note at essentially 0.00% by buying (or not buying) sufficient amounts of debt to make it happen but at the same time it committed itself to the purchase of 80 trillion Yen of government as had been previously announced. Hold on, you might ask, how the hell can they do both at the same time? Beats the hell out of me I would reply and as it seems, so would everybody else. This they think will steepen the yield curve and drive inflation up to the magic 2% level. I suspect what it will really do is the convince the remainder of the world who still doesn't believe that the Japanese really have no policy in which they believe or that makes sense to fall in line. Nevertheless, the Yen strengthened--I suppose because of the lack of action on the short end and Janet & Co. actions--or lack of them--later on in the day.
As predicted the Fed did nothing although the vote was a rather contentious 7-3. It probably was really 6-4 in philosophy and belief but Stan Fisher would never vote against the Chair if she would still be the majority. Janet then gave a rather folksy press conference in which it seemed that the only reason that the Fed didn't move was to preserve the momentum in the job market which has seemed to replace all of the other criteria to justify a rate rise. It was amusing to hear her with great passion (as much as you get from her) to emphasize that the Fed is totally non-political and all discussions are devoid of politics which if anyone didn't believe her they could read the transcript of the meetings which will be released in five years. Thank you Ms. Yellen but I think I'll pass. The ONLY reason you didn't raise rates was the upcoming election and the effect a rate rise might have on the most visible--from a public sense--economic indicator of them all, the stock market. Right on cue the markets closed way up for the day on the continuing lust for free money. So there we have it. The continuation of policies that for either nation have not worked as though this was planned and coordinated which I don't think it was.
Of course there could be another explanation: they are simply are out of bullets and are beginning to realize it but are not yet prepared to admit it. In any case, today was truly Mundo Bizzarro; a global fizzle, that in a sense makes life harder for everyone. By far, Japan's actions have the greater chance of causing mischief as the BOJ is now locked into an impossible strategy. Again, let me say that it is the FX markets that bear watching. Heading into the end of the year is always a frothy time. With so much policy uncertainty it could get downright gnarly.
Showing posts with label Monetary Policy. Show all posts
Showing posts with label Monetary Policy. Show all posts
Wednesday, September 21, 2016
Tuesday, April 21, 2009
CAN I MARRY YOU?
It was quite a show from the get-go. Our Hero appeared before The Congressional Oversight Panel ("COP") up on the Hill today armed with pages of testimony on various bail-outs and fix-it projects. He was rolling right along in bureaucratic other-speak when the Chairperson of the gathering, Elizabeth Warren of the Harvard Law School told him to shut up. Well, she wasn't that blunt but she did tell him to finish up because she was a lot more interested in his answers to the questions that were about to be posed Twice. If available, Ms. Warren I will marry you. There's a couple of problems but we can work them out. If only more things in D.C. were run like this. Of course, Our Hero proceeded to give few satisfactory answers to anything and in fact did admit that he had no idea how to extract the government from its position in AIG much to the feigned surprise of all on the panel. One could actually say that Mr. Geithner had a very shaky grasp of all he discussed leading to the assumption that he may not really be Da Man after all. Methinks we might have an order-taker on our hands and not the executive chef of the repast. Unfortunately, the head cook, whomsoever that may be, appears to be unable to boil water at this stage. Tough cooking the meal when you haven't a clue as to the menu. Anyway, let us continue with our Fed-spec.
Since suggested in this space some weeks ago, there seems to be a full consensus emerging that Mr Bernanke has indeed gone over to the dark side and taken the entire staff (at least the D.C. staff) into the collaboratory mode with this administration as opposed to the normal role of independence in a manner not heretofore seen in recent memory. "Why the concern," one might ask and a valid question it is. To begin, there are now no checks on what is clearly the most radically expansionist fiscal plan in the history of the world. Secondly, while one can argue that there may be an intellectual communion between the Fed and the Administration, one has to be concerned that in the duality of the Fed's mandate--monetary stability and economic stability--the latter has completely overwhelmed the former with adoption of the view that we can fix any inflationary problems that emerge at a later date with the tools available. Thirdly, one must also question how great is the concern on Mr. Bernake's part that the reported oft-mentioned promises to Mr Summers that he would become the next Fed Chair and his desire to prevent that from happening has influenced his actions.
So, what one may argue, if this is the right approach. Perhaps, but in the process if any of the foregoing is correct--or if all are correct--the confidence and trust in the institution as an independent contributor and, indeed arbiter, of economic policy in this country may be irretrievably lost; which, IMHO is an enormous and frightening event.
Another consideration. The Leader is constantly speaking of how this country must constantly seek international cooperation in all matters. Fair enough, but there will be many instances in the near and distant future, as in the past, where it will become necessary for the major central banks in the world to cooperate with one another. It is quite one thing for a central bank to cooperate with another of its ilk; it is quite another thing to cooperate with the arm of a political regime whose interests may not be the same or which may be in conflict with one's home country, or in the case of the EU, a group of countries. The history of the Bank of England up until very recent times is a prime example of such a relationship. This is a difficult thing for those who stand as casual observers to this interplay to understand, but it is very real and very important. Already, one can notice the friction that has been on clear display over the past few months (not just with the present administration) between the Federal Reserve and it's European counterparts even with Mr. Bernake at the helm. I shutter to think of Mr. Summers, whose personality is, shall we say, off-putting at times, being viewed in any light other than as
a politician.
Finally, Monetary policy is not, in my experience as an observer, something that often turns on a dime especially if the people involved in setting such policy may be forced to admit that hey were wrong at a previous moment. As I said at least a month ago, we have seen this movie before. It was called The Seventies. It was ugly. The remake is shaping up to be a real horror. Keep the kiddies at home if this doesn't get stopped.
In this posting on Central Banks there must unfortunately be A Last Post. Eddie George, former Governor of the Bank of England died the other day. I didn't know Mr. George well at all but the times we met I liked him. It was under his watch that the Old Lady became independent of the Treasury but also lost a good deal of its regulatory oversight to the newly created FSA. Mr. George opposed that. He was correct to do so. Flights of Angels Mr. George.
Since suggested in this space some weeks ago, there seems to be a full consensus emerging that Mr Bernanke has indeed gone over to the dark side and taken the entire staff (at least the D.C. staff) into the collaboratory mode with this administration as opposed to the normal role of independence in a manner not heretofore seen in recent memory. "Why the concern," one might ask and a valid question it is. To begin, there are now no checks on what is clearly the most radically expansionist fiscal plan in the history of the world. Secondly, while one can argue that there may be an intellectual communion between the Fed and the Administration, one has to be concerned that in the duality of the Fed's mandate--monetary stability and economic stability--the latter has completely overwhelmed the former with adoption of the view that we can fix any inflationary problems that emerge at a later date with the tools available. Thirdly, one must also question how great is the concern on Mr. Bernake's part that the reported oft-mentioned promises to Mr Summers that he would become the next Fed Chair and his desire to prevent that from happening has influenced his actions.
So, what one may argue, if this is the right approach. Perhaps, but in the process if any of the foregoing is correct--or if all are correct--the confidence and trust in the institution as an independent contributor and, indeed arbiter, of economic policy in this country may be irretrievably lost; which, IMHO is an enormous and frightening event.
Another consideration. The Leader is constantly speaking of how this country must constantly seek international cooperation in all matters. Fair enough, but there will be many instances in the near and distant future, as in the past, where it will become necessary for the major central banks in the world to cooperate with one another. It is quite one thing for a central bank to cooperate with another of its ilk; it is quite another thing to cooperate with the arm of a political regime whose interests may not be the same or which may be in conflict with one's home country, or in the case of the EU, a group of countries. The history of the Bank of England up until very recent times is a prime example of such a relationship. This is a difficult thing for those who stand as casual observers to this interplay to understand, but it is very real and very important. Already, one can notice the friction that has been on clear display over the past few months (not just with the present administration) between the Federal Reserve and it's European counterparts even with Mr. Bernake at the helm. I shutter to think of Mr. Summers, whose personality is, shall we say, off-putting at times, being viewed in any light other than as
a politician.
Finally, Monetary policy is not, in my experience as an observer, something that often turns on a dime especially if the people involved in setting such policy may be forced to admit that hey were wrong at a previous moment. As I said at least a month ago, we have seen this movie before. It was called The Seventies. It was ugly. The remake is shaping up to be a real horror. Keep the kiddies at home if this doesn't get stopped.
In this posting on Central Banks there must unfortunately be A Last Post. Eddie George, former Governor of the Bank of England died the other day. I didn't know Mr. George well at all but the times we met I liked him. It was under his watch that the Old Lady became independent of the Treasury but also lost a good deal of its regulatory oversight to the newly created FSA. Mr. George opposed that. He was correct to do so. Flights of Angels Mr. George.
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