Just How Dangerous Is Trumps Latest Fed Board of Governors Pick?

Last week, Pres. Donald Trump nominated Marvin Goodfriend to fill a vacancy on the Federal Reserve Board of Governors. When we reported the news, we called him ‘another swamp creature’ – a member of the Washington D. C./Wall Street clan Trump promised to drain away.
We’re not alone in our thinking. In an article on the Mises Wire, Tho Bishop called Goodfriend’s nomination ‘a dangerous act of outright betrayal to Trump’s core constituency of working-class voters.’
It’s true Goodfriend’s views on monetary policy don’t fit in with the current Fed status quo. But that’s not a good thing. Goodfriend isn’t a fan of the conventional radical policy of quantitative easing. He’s actually a proponent of an even more radical policy.
Following is Bishop’s analysis in its entirety.
Donald Trump nominated Marvin Goodfriend to the Federal Reserve Board of Governors, one of the numerous vacancies that have emerged over the course of the past year. While his prior nominations of Jay Powell as Chairman and Randal Quarles as Vice Chair represented a disappointing commitment to the status quo, his selection of Goodfriend is a dangerous act of outright betrayal to Trump’s core constituency of working class voters.
The timing of the decision is ironic. After all, while Trump is busy lobbying Senate Republicans to support his desired tax cuts, he has decided to nominate a would-be central banker who wants to effectively tax the bank accounts of American citizens.

This post was published at Schiffgold on DECEMBER 5, 2017.

Can Japan End its Easy-Money Addiction?

The shock landslide defeat of PM Shinzo Abe’s Liberal Democratic Party (LDP) in the recent Tokyo metropolitan elections – and the triumph there of Tokyo Governor Koike’s new party (Tomin First) – has lit a faint hope that the radical Japanese monetary expansion policy could be on its way out. The flickering light though is not strong enough to soothe the mania in Japan’s carry trades and so the yen continued to slide in the aftermath of the elections. Between mid-June and early July the Japanese currency depreciated by some 5% against the US dollar and 10% against the euro.
The perception in currency markets is that Japan will not be embarking on monetary normalization this year or next, in contrast to Europe where ECB Chief Draghi has hinted that the train (to monetary normalization) will start next year, even though the journey promises to be very slow. The US train to normalization continues at a glacially slow pace including some periods of reverse movement. Moreover the monetary climate prior to the journey commencing is even more extreme in the case of Japan than in Europe or the US.
It was possible to imagine that the shock election setback for the LDP could have caused Shinzo Abe to withdraw support from his money-printer in chief, Bank of Japan governor Haruhiko Kuroda (whose term ends in April 2008), thereby signaling an early end to negative interest rates and quantitative easing. But markets in their wisdom have concluded this is not to be. Many elderly Japanese are pleased with their stock market and real estate gains even though they complain about negative interest rates and the threat of inflation. In any case it was young voters, responding to the stink of alleged corruption scandals, who turned out en masse for Governor Koike’s new party.

This post was published at Ludwig von Mises Institute on July 17, 2017.

A Realistic Decomposition Of Rates, Or At Least A Realistic Interpretation Of It

Last April, former Fed Chairman Ben Bernanke wrote a series of blog posts for Brookings that was intended to explain one of the biggest contradictions of his legacy. If quantitative easing had actually worked as he to this day suggests that it did, why wasn’t the bond market in clear agreement? In order to try to reconcile the huge discrepancy, Bernanke offered several possibilities, even titling his effort ‘Why Are Interest Rates So Low?’ to further emphasize the difficulty.
The fourth part of his series treated with ‘term premiums’, an element of Fisherian rate decomposition that economists use to try to understand bondholders and their motivations. In many ways, however, ‘term premiums’ are a plugline, a leftover after considering the other perhaps more visible (this is a relative designation, as we always need to keep in mind that nothing presented here or that is discussed in policy or mainstream circles about these ideas is visible) parts of rate decomposition – expected path of real short-term interest rates and inflation compensation.

This post was published at David Stockmans Contra Corner by Jeffrey P. Snider ‘ September 28, 2016.

At Last – – Even The FT Says Fed on Ropes as Yellen Seeks to Fend off Trump Blows

After a fusillade of excoriating and in many ways unprecedented attacks on the Federal Reserve by the Republican presidential candidate, Janet Yellen, the US central bank’s chair, finally hit back.
Ms Yellen last Wednesday dismissed as emphatically wrong Donald Trump’s claims that she and her institution were keeping short-term interest rates low at the behest of the Obama administration. ‘Partisan politics play no role in our decisions,’ she declared.
Mr Trump is throwing punches at a time when the US central bank is under assault from both sides of the partisan divide, and at a time when polling suggests public confidence in its leadership has declined during a subpar economic recovery.
Some experts say the Fed is vulnerable and that the populist attacks could fuel demands by politicians for tighter constraints on its policy freedoms. Mr Trump ‘is tossing a lot of fuel on the fire’, says Sarah Binder, a professor of political science at George Washington University. ‘It intensifies the partisan criticism of the Fed and keeps the Fed in the politicians’ crosshairs.’ Mr Trump’s interventions by no means mark the first time the Fed has been turned into a political punching bag. Previous Fed chairs have been the subject of barbs during presidential campaigns – including in 2011 when Republican candidate Rick Perry accused former Fed chair Ben Bernanke of ‘treasonous’ behaviour by conducting quantitative easing. Past administrations have seen outbreaks of tension with Fed chiefs, including under presidents George HW Bush and Richard Nixon.

This post was published at David Stockmans Contra Corner By Sam Fleming, Financial Times ‘ September 28, 2016.

At Last – – FT Says Fed on Ropes as Yellen Seeks to Fend off Trump Blows

After a fusillade of excoriating and in many ways unprecedented attacks on the Federal Reserve by the Republican presidential candidate, Janet Yellen, the US central bank’s chair, finally hit back.
Ms Yellen last Wednesday dismissed as emphatically wrong Donald Trump’s claims that she and her institution were keeping short-term interest rates low at the behest of the Obama administration. ‘Partisan politics play no role in our decisions,’ she declared.
Mr Trump is throwing punches at a time when the US central bank is under assault from both sides of the partisan divide, and at a time when polling suggests public confidence in its leadership has declined during a subpar economic recovery.
Some experts say the Fed is vulnerable and that the populist attacks could fuel demands by politicians for tighter constraints on its policy freedoms. Mr Trump ‘is tossing a lot of fuel on the fire’, says Sarah Binder, a professor of political science at George Washington University. ‘It intensifies the partisan criticism of the Fed and keeps the Fed in the politicians’ crosshairs.’ Mr Trump’s interventions by no means mark the first time the Fed has been turned into a political punching bag. Previous Fed chairs have been the subject of barbs during presidential campaigns – including in 2011 when Republican candidate Rick Perry accused former Fed chair Ben Bernanke of ‘treasonous’ behaviour by conducting quantitative easing. Past administrations have seen outbreaks of tension with Fed chiefs, including under presidents George HW Bush and Richard Nixon.

This post was published at David Stockmans Contra Corner on September 28, 2016.

More Indications of Labor Slowing – -Yellen’s Favorite Index Hits The Skids

The Federal Reserve’s Labor Market Conditions Index (LMCI) fell to contraction again in August. After rebounding in July for the first positive reading of 2016, the LMCI dropped to -0.7 in the latest update. As usual, revisions have reshaped the levels of indicated problems throughout the past two years, but overall the trend remains. From this view of the labor market, the economy is surely slowing even if taking two years to suggest by how much.
As I wrote earlier today, I believe that is the natural tension between an economy that ‘wants’ to grow but can’t due to monetary suppression. This is nothing to do with quantitative easing or ‘stimulus’ in broad terms, except that it further shows that no form of central bank policies has had the effect of increasing the money supply to the real economy.
What Friedman actually meant, and what we can observe now, is that low interest rates indicate tight monetary conditions for the real economy. On that score there is no mystery about ‘tightness’ so much that even labor statistics and the seemingly impenetrable services economy are now openly displaying it. You look at the TED spread and see that ‘something’ changed in August last year; you look at the ISM Non-manufacturing PMI and sure enough, same thing. Where eurodollar decay had before cut a great deal off global economic growth (the depression), the ‘rising dollar’ variant of it seems to be that much worse in that it is pushing the real economy into active deceleration and contraction (some places already alarmingly deep).

This post was published at David Stockmans Contra Corner on September 7, 2016.

Why A Weak US Consumer Makes A Grim Outlook for the Economy, Stocks

For some time, Stephanie Pomboy, an economist and the founder of MacroMavens, has pushed a provocative theory that a crisis-chastened U. S. consumer would retard global growth. That is why a U. S. recovery has taken so long to take off, and why Japan and Europe look set to embark on more rounds of quantitative easing.
An avid reader of Shakespeare, Pomboy appreciates the comic and tragic dimensions of the markets – the giddy optimism for the second half of the year, and the potentially disastrous consequences of excessively low rates. As stocks teetered at new highs, we phoned Pomboy in Vail, Colo., where she lives when not in Manhattan, to hear her latest views. They aren’t rosy: Investors and policy makers are deluding themselves that we will soon return to a pre-financial crisis framework. Things have changed, she says, which means expectations for economic growth in the second half are far too optimistic. And today’s low rates could cause another financial crisis, bankrupting pension plans, putting retirees at risk, and hurting stocks.
Barron’s: You like to focus on the consumer – and plot U. S. consumer spending as a percentage of GDP versus world trade. Why?
Pomboy: What ignited and supported the entire era of globalization was the spendthrift U. S. consumer; economies have been totally reliant on trade to U. S. consumers. This once-in-a-generation asset deflation will fundamentally change behavior, just as the Depression changed an entire generation’s attitude about spending and saving.

This post was published at David Stockmans Contra Corner on August 22, 2016.

BOJ Firepower Fizzles as Currency Market Dares Japan to Act

Foreign-exchange traders are becoming increasingly confident that the Bank of Japan won’t stand in the way of further yen strength after the currency surpassed 100 per dollar for the second time this year.
Strategists at Bank of Tokyo-Mitsubishi UFJ Ltd. and Morgan Stanley see the yen extending this year’s almost 20 percent gain versus the dollar, further confounding policy makers who are seeking to spur growth and inflation in the world’s third-largest economy. As the currency surged Tuesday, Japanese Vice Finance Minister Masatsugu Asakawa said he’s watching with concern to see if there are speculative moves in the foreign-exchange market.
Forecasters who started 2016 predicting yen weakness have had to revisit calls predicated on Japan’s ability to use rhetoric, monetary stimulus and quantitative easing to stymie the currency’s advance. Efforts that would typically weaken the yen have proven largely ineffective this year, signaling that the BOJ may have run out of room to maneuver. At this point, the yen’s strength appears to fall short of levels where the BOJ would consider entering the market to sell yen – a step that hasn’t happened since 2011 – according to Mizuho Bank Ltd.
More Jawboning
‘The verbal warnings will get stronger until something nearer 90, which might induce some form of physical intervention,’ said Neil Jones, head of hedge-fund sales at Mizuho in London. ‘It is very unlikely that they will unilaterally intervene at current levels.’

This post was published at David Stockmans Contra Corner on August 17, 2016.

The Bizarro World Of Bonds Keeps Get More Bizarre

Central banks have always been able to make waves in markets. But never have they had such far-reaching effects, nor so quickly. The world of bonds is being turned upside down as a result.
Monetary policy traditionally has involved adjusting a short-term rate of interest that can then, over time, affect the structure of long-term rates that are set by markets. But central banks’ bond purchases and ultralow interest rates mean that distortions are rife.
Some ripples are having immediate impacts: the Bank of England’s new quantitative easing program, for instance, has turbocharged the U. K. bond market. The failure of the BOE to buy as many bonds as it wanted Tuesday pushed long-dated gilt yields to new historic lows: the 30-year yield, which three months ago was 2.3%, now stands at 1.3%. Gilts maturing in 25 years or more have returned an extraordinary 34.8% so far in 2016, according to Barclays.

This post was published at David Stockmans Contra Corner By Richard Barley, Wall Street Journal ‘ August 11, 2016.

Japan’s Lemming Syndrone

The financial world is buzzing about former Fed chairman Ben Bernanke’s recent trip to Japan, where he advised Japan’s central bank chief Haruhiko Kuroda on how to manage his nation out of multi-decades of stagnant growth. Channeling economist Milton Friedman, Bernanke warned that Japan was vulnerable to perpetual deflation and stagnate growth and that helicopter money – where the government issues non-marketable bonds with no maturity date and the Central Bank buys them with counterfeited credit – was the most useful tool in overcoming this condition.
Bernanke encouraged Japan to carry on with the Abenomics policies that have failed to date by supplementing monetary policy with even more fiscal stimulus – as if Japan’s 230% debt to GDP ratio wasn’t enough. And he assured Abe and his staff that the Bank of Japan (BOJ) has instruments to ease monetary policy yet further.
And in case this village needed another idiot, Nobel laureate Paul Krugman, also chimed in. Arguing that Japan should raise its inflation target to 4 percent and embark on a significant but temporary fiscal stimulus to boost prices in the economy. Speaking at a conference on Thursday in Singapore, Krugman called for ‘a big burst of government spending and maybe also cash donations.’
But the truth is that despite pumping trillions of yen into the financial system, Japanese money printing has had little or no effect in restoring growth. In fact, Japan has already undertaken the largest quantitative easing program – much larger in relative terms than the U. S. Federal Reserve and the European Central Bank.

This post was published at David Stockmans Contra Corner on July 25, 2016.

The Helicopter Has Already Been Tested – – And It Has Failed Spectacularly

Most of what passes for modern monetary policy is nothing more than one assumption piled upon another (and then another, and so on). Taken for granted for so long, rarely are these unproven precepts ever challenged to justify themselves to the minimal standard of internal consistency, let alone prove discrete validity by parts. The latest is ‘helicopter money’, another sham in a long line of them proffered by at least one central bank today because it knows, as the others, nothing they have done has worked.
The fact that the world is even discussing the helicopter option should instill great skepticism as a first impulse, not more rabid faith. The way this latest scheme is being described is exactly the same as quantitative easing was really not that long ago. Clearly the expectation for it is rising, as Bloombergreported today that, ‘Nearly one-third of clients and colleagues surveyed by Citigroup Inc. think that so-called helicopter money could be on its way within a fortnight.’ Forty-three percent in the same survey believed that the ‘market’ was expecting it.
To do what? That is the question that is never asked because it is just accepted by economists and their media that the helicopter, as QE, will perform as designed even though the last almost decade has proven beyond doubt that never happens.
Separately, Bank of America Merrill Lynch Chief Investment Strategist Michael Hartnett opined that helicopter money would be the best option to bring money into risk assets, a common goal of monetary stimulus, particularly of the unconventional variety.
Stocks are at record highs, and had made them regularly following QE3. And it didn’t have any impact on the economy whatsoever. The most charitable supposition is that it might have been worse (jobs saved rather than created) had stocks more accurately reflected even earnings rather than unhinged forward versions of them. Even that is dubious, because the entire idea of monetarism is nothing more than assumptions never before tested in the real world. QE sounded nearly fool-proof in the laboratories of Ivy League universities; put into action it has left many pining instead for something else.

This post was published at David Stockmans Contra Corner by Jeffrey P. Snider ‘ July 19, 2016.

Helicopter Money – – The Biggest Fed Power Grab Yet

The Cleveland Fed’s Loretta Mester is a clueless apparatchik and Fed lifer, who joined the system in 1985 fresh out of Barnard and Princeton and has imbibed in its Keynesian groupthink and institutional arrogance ever since. So it’s not surprising that she was out flogging – -albeit downunder in Australia – – the next step in the Fed’s rolling coup d etat.
We’re always assessing tools that we could use,’ Mester told the ABC’s AM program. ‘In the US we’ve done quantitative easing and I think that’s proven to be useful.
‘So it’s my view that [helicopter money] would be sort of the next step if we ever found ourselves in a situation where we wanted to be more accommodative.
This is beyond the pale because ‘helicopter money’ isn’t some kind of new wrinkle in monetary policy, at all. It’s an old as the hills rationalization for monetization of the public debt – – that is, purchase of government bonds with central bank credit conjured from thin air.
It’s the ultimate in ‘something for nothing’ economics. That’s because most assuredly those government bonds originally funded the purchase of real labor hours, contract services or dams and aircraft carriers.
As a technical matter helicopter money is exactly the same thing as QE. Nor does the journalistic confusion that it involves ‘direct’ central bank funding of public debt make a wit of difference.

This post was published at David Stockmans Contra Corner by David Stockman ‘ July 13, 2016.

Deutsche Bank Issues Blistering Attack – – Says Desperate Draghi Risks Destroying Entire ‘European Project’

The European Central Bank’s loose monetary policy risks destroying the European project, Deutsche Bank has warned.
In a blistering attack, Deutsche suggested the ECB had ‘los[t] the plot’ and that its ‘desperate’ actions raised the risk of a potentially ‘catastrophic’ mistake by the central bank.
David Folkerts-Landau, Deutsche’s chief economist, said negative interest rates and quantitative easing had hurt savers and allowed politicians to delay badly-needed structural reforms.
‘ECB policy is threatening the European project as a whole for the sake of short-term financial stability,’ he said in a note titled ‘The ECB must change course’.
It said: ‘The longer policy prevents the necessary catharsis, the more it contributes to the growth of populist or extremist politics.
‘The benefits from ever-looser policy are diminishing while the litany of distortions, perversions and disincentives grows by the day. Savers are punished and speculators rewarded. Bad companies survive while good companies are too scared to invest.’
The German economist also warned that the ‘whatever it takes’ stance taken by president Mario Draghi and the ECB had ‘distorted the market-based pricing of government bond yields’.

This post was published at David Stockmans Contra Corner on June 9, 2016.

Fund Managers Fear Another Lehman Event – -From Massive Central Bank Intrusion

BERLIN (MarketWatch) – Negative interest rates, ultracheap loans and aggressive quantitative easing – central banks are doing everything they can to prevent another financial crisis, but their unconventional measures are instead creating a massive risk to the global economy, top money managers say.
Gathering for the international FundForum in Berlin this week, more than 1,300 fund managers spent three days discussing the current investment outlook and the central banks’ monetary ‘experiment’ emerged as a major concern for the industry.
‘I think it’s fair to say it is an experiment because it hasn’t been done at this magnitude of negative interest rates. So many sovereigns have negative interest rates,’ said Alexander Ineichen, founder of Ineichen Research and Management.
‘In 2008 we had a Lehman moment and central banks stepped in, which was nice. But a lot of the structural issues have not been resolved. A lot of the leverage just went from the private sector to the public sector. My guess is that the next big risk, the next ‘Lehman moment’ is the sovereign. It’s because the problems are now there. The risks are structural,’ he said.

This post was published at David Stockmans Contra Corner on June 8, 2016.

How Cheap Debt Is Thwarting Economic Recovery

In 2009, a small group of analysts dared to question whether emergency stimulus measures were the beginning of the ‘Japanization’ of Europe and the U. S. Ultralow interest rates, large budget deficits and then quantitative easing were all meant to be temporary. Seven years later, only the most optimistic could see these measures being put away soon.
In 2014 Larry Summers called the current malaise ‘secular stagnation.’ The secular part implies the change is not cyclical but has become entrenched. The stagnation part means that there is little or no growth. This year the mainstream business news (i.e. Bloomberg, not just Zero Hedge) has started regularly publishing articles questioning whether orthodox economic policy has any answers left.
Orthodox economists and central bankers are openly saying that monetary policy has reached its limits and the answers must be found elsewhere.
While there might be a consensus that monetary policy isn’t working, there isn’t a consensus on whether fiscal policy is the solution. At one end of the spectrum, Paul Krugman argues that bigger government deficits are the answer. At the other end there’s a growing group that thinks orthodox economics continues to ignore debt and therefore hasn’t correctly diagnosed the problem. If the diagnosis is wrong, the remedy is almost certainly wrong as well.
Like many, it is as a result of the financial crisis and being part of debt markets that I’ve come to understand how important debt is in the functioning of an economy. Incorporating debt into economic analysis is a lightbulb moment. Easy and cheap debt creates overcapacity in economies. Examples include property and infrastructure in China, the recent U. S. energy boom and the precrisis housing boom in the U. S. Overcapacity is typically cleaned out in a recession, but the ongoing global wave of bailouts hasn’t allowed this natural process to occur.

This post was published at David Stockmans Contra Corner on June 3, 2016.

Quantitative Easing and the Corruption of Corporate America

The art of brevity was not lost on Abraham Lincoln. It is that brevity in all its glory that shines through in what endures as one of the most beautiful testaments to the art of oration: The Gettysburg Address rounds out at 272 resounding words. The nation’s 16th President humbly predicted that the world would quickly forget his words of that November day in 1863. Rather, he said, history would solely evoke the valiant acts of men such as those whose blood still soaked the consecrated battleground on which they stood. Of course, Lincoln was both right and wrong. Neither the men who sacrificed their lives nor his words would be forgotten. We remember and know that a terrible and ever mounting price would ultimately be paid, some 623,026 American lives, the steepest in man’s bloody history.
In what can only be described as the pinnacle of prescience, a 28-year old Lincoln foretold of the coming Civil War, which he presaged would come to pass if the scourge of slavery remained unchecked. In an address to the Young Men’s Lyceum of Springfield, Illinois in January 1938, Lincoln spoke these haunting words: ‘If destruction be our lot, we must ourselves be its author and finisher.’ The enemy within.
Since that devastating brother against brother Civil War, so prophetically foreseen by Lincoln, more than 626,000 American soldiers have lost their lives defending the ideals and freedom of our Union. Today that Union stands, but it must now face the threat of an enemy rising within its borders to wage a different kind of war against our hard fought freedom.
To be precise, today’s dangers emanate from our nation’s boardrooms, where officers and executives have authorized an era of reckless abandon in the form of share buybacks. In the event the word ‘hyperbolic’ just came to mind, the ramifications of a lost generation of investment in Corporate America should not be lightly dismissed. This trend, above all others, has weakened the foundation of U. S. long term economic growth.

This post was published at David Stockmans Contra Corner by Danielle DiMartino Booth ‘ May 25, 2016.

Italy’s Debt Trap – -Survival Or The Euro

Italy is running out of economic time. Seven years into an ageing global expansion, the country is still stuck in debt-deflation and still grappling with a banking crisis that it cannot combat within the paralyzing constraints of monetary union.
‘We have lost nine percentage points of GDP since the peak of the crisis, and a quarter of our industrial production,’ says Ignazio Visco, the rueful governor of the Banca d’Italia.
Each year Rome hopefully pencils in a fall in the ratio of public debt to GDP, and each year the ratio rises. The reason is always the same. Deflationary conditions prevent nominal GDP rising fast enough to outgrow the debt.
The putative savings from drastic fiscal austerity – cuts in public investment – were overwhelmed by the crushing arithmetic of the ‘denominator effect’. Debt was 121pc in 2011, 123pc in 2012, 129pc in 2013.
It came close to levelling out last year at 132.7pc, helped by the tailwinds of a cheap euro, cheap oil, and Mario Draghi’s fairy dust of quantitative easing. This triple stimulus is already fading before the country escapes the stagnation trap. The International Monetary Fund expects growth of just 1pc this year.
The global window is closing in any case. US wage growth will probably force the Federal Reserve to raise interest rates and wild speculation will certainly force China to rein in its latest credit boom. Italy will enter the next downturn – perhaps early next year – with every macro-economic indicator in worse shape than in 2008, and half the country already near political revolt.

This post was published at David Stockmans Contra Corner on May 12, 2016.

Peter Thiel Says Everything Is Overvalued: “Public Equities, Houses, Government Bonds”

Since the Fed may not, or simply refuses, to see if not a bubble then at least “froth” in any asset class, perhaps it should hire Peter Thiel to be on its macroproduential supervisory committee, because according to the venture capital legend who co-founded PayPal everything is overvalued. Speaking at the LendIt USA Conference in San Francisco on Tuesday, he said that he is “somewhat concerned about the frothiness of the markets” and adds that “startup tech stocks may be overvalued, but so are public equities, so are houses, so are government bonds.”
He adds that “if there is a bubble it is probably centered on the zero % interest rates, the quantitative easing, the money printing and that’s a very strange one because it permeates everything.”
To be sure he remembered that he does have a conflict of interest and tried to tone down the bashing of his own industry: “Silicon Valley is quite far from it. If the bubble is in cash, illiquid startup investments may be a place to hide.”

This post was published at Zero Hedge on 04/13/2016.

Markets Dead, Correlations 1.0, Normalization Never

Once again, in spectacular fashion, the financial ‘markets’ have miraculously rebounded from the aptly moniker’d ‘Bullard Bottom’ and without pause has traversed in a near vertical assent to recapture the levels where all the uncertainties began. In other words, after all the gyrations over the last 14 months we are once again only back to the levels (as scored by the U. S. financial markets e.g., Dow, S&P, et al) where the Fed. stood confidently in their economic policy acumen.
Remember those confident proclamations during that time? (paraphrasing) ‘The economy has recovered quite admirably as to allow the QE (quantitative easing) program to end.’ That was a good one, no? Remember what happened next? Nothing, as in the ‘markets’ basically went nowhere up, nor down for months on end.
Sure there were some great headlines made of this path to nowhere as the market screamed sideways in a pattern much like a cardiac reading with blips and spikes that allowed headlines such as ‘New Never Before Seen In The History Of Mankind Highs!’ on a near weekly basis. Yet, although those headlines were true, all they did was mask the fragile, ever deteriorating economy those ‘meters’ were hooked to.

This post was published at David Stockmans Contra Corner on March 21, 2016.

The ECB And John Law’s Mississippi Bubble – -They Never Learn

Last week, the ECB extended its monetary madness, pushing deposit rates yet more negative. It is extending quantitative easing from sovereign debt into non-financial investment grade bonds, while increasing the pace of acquisition to 80bn per month. The ECB also promised to pay the banks to take credit from it in ‘targeted longer-term refinancing operations’.
Any Frenchman with a knowledge of his country’s history should hear alarm bells ringing. The ECB is running the Eurozone’s money and assets in a similar fashion to that of John Law’s Banque Generale Prive (renamed Banque Royale in 1719), which ran those of France in 1716-20. The scheme at its heart was simple: use the money-issuing monopoly granted to the bank by the state to drive up the value of the Mississippi Company’s shares using paper money created for the purpose. The Duc d’Orleans, regent of France for the young Louis XV, agreed to the scheme because it would provide the Bourbons with much-needed funds.
This is pretty much what the ECB is doing today, except on a far larger Eurozone-wide basis. The need for government funds is of primary importance today, as it was then.

This post was published at David Stockmans Contra Corner on March 18, 2016.