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Audit The Fed——And Shackle It, Too
Audit The Fed——And Shackle It, Too
The reason to be fearful about the economic and financial future is that we are in the thrall of a mainstream consensus that is downright meretricious. In attacking Rand Paul’s audit legislation, for instance, one of the time-servers on the Fed Board of Governors, Jerome H. Powell, let loose the following gem:
“As recent U.S. history has shown, elected officials have often pushed for easier policies that serve short-term political interests…..”
Perhaps Mr. Powell is a descendent of Rip Van Winkle—–and missed the last 20 years of history while doing LBOs at the Carlyle Group and helping Congress improve upon its enviable record of fiscal management while at the Bipartisan Policy Center. But whatever he was doing—snoozing or otherwise distracted—- it most assuredly was not gathering evidence that “elected officials” were putting undue pressure on the Fed for “easier policies”.
For crying out loud there is exactly zero evidence that “politicians” had anything to do with zero interest rates. And ZIRP defines the ultimate level of “ease” according to Bernanke himself, who famously described his policies as positioned at the “zero bound”.
Indeed, given the very earliest expected date for “lift-off” in June, the Fed will have pinned the money market rate at zero for 80 months running. This unprecedented tsunami of “easy money”, of course, happened with nary a Congressman or Senator darkening the door at the Eccles Building.
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The Truth About The Monetary Stimulus Illusion
The Truth About The Monetary Stimulus Illusion
Perhaps economic policymakers, including Federal Reserve Chair Janet Yellen and the Bank for International Settlements, should take a closer look at Japan, China, and yes, the United States, when debating the limits of monetary stimulus and the dangerous nature of financial bubbles. The discussion is happening too late to be anything more than an intellectual exercise.
Since its inception in 2008, easy monetary policy has created very few positive effects for the real economy—and has created considerable (and in some cases unforeseen) negative effects as well. The BIS warns of financial bubbles. Quantitative easing has already created asset price bubbles in the United States and elsewhere, and an investment bubble (this includes capital expenditure and real estate) in China and other emerging markets.
Meanwhile, this policy has failed to have a positive impact on the real economy partly because central banks have adopted very aggressive monetary easing at a macro level while restricting banks from increasing the size of their balance sheets at a micro level (macro-prudential policy). As a result, easy money has flowed into asset markets through shadow banks and overseas through carry trades.
China has been the main recipient of this bounty. Yet unlike global asset market bubbles, China’s expanding bubble is less well understood. China’s economy has grown at a rapid clip this century. Industrial production, based on the value of the dollar in 2005, increased five-fold from $800 billion in 2000 to $4 trillion in 2013. China averaged an annual growth rate of 33 percent during this period while global production grew 3.1 percent and the United States barely grew at all (averaging 0.5 percent). Not surprisingly, China’s share of global production increased from 4.5 percent to 22 percent between 2000 and 2013.
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The Deflation Calamity Howlers Are Dead Wrong—-In Europe And Everywhere Else
The Deflation Calamity Howlers Are Dead Wrong—-In Europe And Everywhere Else
The calamity howlers of deflation are out in force this morning owing to an absolute economic non sequitur. Namely, that year-on-year consumer prices in the EU came in at negative 0.2% in December, implying that ECB printing presses need to go into immediate overdrive.
Well, of course the CPI has momentarily weakened. Crude oil has experienced a monumental plunge of more than 50% since mid-2014. That has temporarily dragged down the euro zone’s reported CPI and the math isn’t all that complex. During the last 12 months, euro zone energy prices have fallen by 6.3%, and everything else is still 0.6% higher than a year ago.
So what’s the emergency? This is the very same CPI blip that occurred when oil collapsed in the second half of 2008. As is evident below, that episode did not generate some cascading plunge into economic darkness. In fact, the Eurozone CPI was back running above 2.5% in no time.
The truth of the matter is that the EU-19 is in clover because it’s consumers get a big break; and, on the other side of the economic equation, it produces almost no oil. Europe’s production is mainly in the UK and Norway and they have their own currencies.Accordingly, the ECB should be putting its printing presses on an extended sabbatical and declaring victory on the achievement of its “price stability” objective.
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China’s Christmas Present To The World: Beijing Eases Again, Sets Non-Bank Deposit Reserve To Zero | Zero Hedge
Four years ago, on Christmas Day in 2010, China shocked the world when, unexpectedly, hiked its lending and deposits rates by 0.25% in order to battle inflation – only its second such hike in the prior 3 years. Since then things for the global economy haven’t done exactly as expected, and certainly not for China, which as the following chart of constantly downward-revised IMF growth forecasts, has seen its growth rate tumble from double digits to just hanging on to 7%, and dropping fast.
Fast forward to last night, when in another Christmas surprise, China once again decided to adjust the cost of money, only this time instead of hiking it eased, and in an effort to shore up the world’s second-largest economy, China Business News reported that:
- PBOC WAIVES RESERVE REQUIREMENT FOR NON-BANK DEPOSIT
