Home » Posts tagged 'janet yellen' (Page 2)

Tag Archives: janet yellen

Olduvai
Click on image to purchase

Olduvai III: Catacylsm
Click on image to purchase

Post categories

Post Archives by Category

Volcker Rebukes Bernanke and Yellen

Volcker Rebukes Bernanke and Yellen

In his new book, “Keeping At It: The Quest for Sound Money and Good Government,” by Paul Volcker (1979-1987) with Christine Harper, the former Fed Chairman delivers a sound rebuke to Chairmen Ben Bernanke (2006-2014) and Janet Yellen (2014-2018), and other Fed governors and economists, for fretting overmuch about deflation.  He argues that the true danger is that loose monetary policy leads to inflation and market contagion caused by the manipulation of risk preferences.

Volcker specifically chides Bernanke and Yellen for their fixation on a two percent inflation target, one of the main ornaments on the data dependent Fed Christmas Tree.  “How did central bankers fall into the trap of assigning such weight to tiny changes in a single statistic, with all of its inherent weakness?” he asks.  Good question. Volcker writes in Bloomberg:

“Deflation is a threat posed by a critical breakdown of the financial system. Slow growth and recurrent recessions without systemic financial disturbances, even the big recessions of 1975 and 1982, have not posed such a risk.  The real danger comes from encouraging or inadvertently tolerating rising inflation and its close cousin of extreme speculation and risk taking, in effect standing by while bubbles and excesses threaten financial markets. Ironically, the ‘easy money,’ striving for a ‘little inflation’ as a means of forestalling deflation, could, in the end, be what brings it about.  That is the basic lesson for monetary policy. It demands emphasis on price stability and prudent oversight of the financial system. Both of those requirements inexorably lead to the responsibilities of a central bank.”

Of course, Volcker is cut from different cloth than his successors.  Janet Yellen was only chairman of the Federal Reserve Board for four years and with good reason.

…click on the above link to read the rest of the article…

Yellen Wants Fed to Commit to Future Booms to Make Up for Busts

Former Fed Chair Yellen promotes “Lower for Longer”, a policy in which the Fed knowingly keeps interest rates too low.

Here’s the asinine policy proposal of the day: Fed Should Commit to Future ‘Booms’ to Make Up for Major Busts.

The U.S. Federal Reserve should commit to letting economic booms run on enough to fully offset collapses like the 2007 to 2009 Great Recession, former Fed chair Janet Yellen said on Friday, urging the central bank to make “lower-for-longer” its official motto for interest rates following serious downturns.

Elaborating on how the central bank should think about what to do if rates have to be cut to zero again in the future and can’t go any lower, she said the Fed should promise now that it will keep rates low enough to let a hot economy make up for lost time.

“By keeping interest rates unusually low after the zero lower bound no longer binds, the lower-for-longer approach promises, in effect, to allow the economy to boom,” Yellen said in remarks delivered at a Brookings Institution conference. “The (Federal Open Market Committee) needs to make a credible statement endorsing such an approach, ideally before the next downturn.”

What We Are Doing Already

The official policy is what we are doing already. May as well make a policy out of it.

The caveat, of course, is the Fed does not realize what it’s already doing.

Ass Backward

There is one more major flaw. It’s ass Backward. We have major busts because the Fed blew major bubbles.

The dotcom bubble arose when Fed Chairman Alan Greenspan held interest rates too low, too long with irrational fears of a Y2K disaster.

The housing bubble was a direct result of Greenspan holding rates too low, too long in the wake of dotcom and 911 disaster.

…click on the above link to read the rest of the article…

ECB & Bonds – People Believe What They Want to Believe

QUESTION: the ECB is arguing that given the low free float of EU bonds (especially German), bonds not owned by the ECB or other central banks, the impact of an end to APP purchases will be nowhere comparable to the tapering sell-off in the US in 2013. Bank research teams are hanging on to this idea to make positive forecasts in the EUR exchange rate versus the USD. They say an end-date for the APP programme may not result in a higher risk/term premium in the European government bond market.
Could you comment on this, please? Many thanks for all your work,
GM

ANSWER: The ECB knows it has to stop the QE program. They also know that Yellen was correct in lecturing them that interest rates had to be “normalized” so they know there is a real meltdown coming. That is inevitable. Pension funds cannot buy 10-year bonds at 1.5% or even 3% locking in losses for 10 years. I really fail to see that claiming there is such a small float, because the ECB has been the 800-pound gorilla buying everything, that interest rates will not rise. That is just complete fallacy. There is a small float because they have DESTROYED the bond market in Europe.

Draghi has proved something incredibly important – Demand-Side Economics has been a complete and utter failure. After 10 years of manipulating interest rates, that they want to put private bankers in prison for under the Libor Scandal, the ECB has failed completely. In just 7 days, the German bunds dropped from 16415 to 15939 – that was 5.9%. The 2013 decline in US 30-year Treasuries back in 2013 was 16%. So what the Bunds did in 7 days in their decline based upon events in Italy reflect that the ECB is trying to paint a picture that yes – rates will rise and bonds will decline.

…click on the above link to read the rest of the article…

Trump and the Federal Reserve

Trump and the Federal Reserve

Many of us would rather not think about the possibility of President Trump getting reelected, but there is little doubt that he is thinking about it.

If Trump is serious about winning reelection, he may want to reconsider the sort of people he is appointing to the Federal Reserve. Virtually all political experts agree that a central factor in a president’s reelection prospects is the state of the economy in the year he or she is running. But Trump is appointing people who are likely to support rapid increases in interest rates, which very well could slow economic growth.

Unfortunately, most Americans don’t pay much attention to the Fed. People usually perceive its decisions about interest rates and inflation as affecting only Wall Street and big investor types. But the Fed has an enormous impact on the lives of ordinary workers. When it chooses to raise interest rates, as it has been doing for the last 15 months, it is making a conscious decision to slow the economy.

Higher interest rates discourage people from buying new cars and homes. Fewer home owners refinance mortgages. Businesses and state and local governments are less likely to borrow to invest in new factories, equipment and infrastructure. When growth slows, the economy has fewer jobs. The unemployment rate could stop falling and even rise. People with jobs also are worse off because they have less bargaining power in a weaker labor market. Their wages rise less rapidly and may not keep up with inflation.

The Fed and its leadership should matter to all of us, in other words.

Until the beginning of February, the central bank was led by Janet L. Yellen. Over the previous 15 months, Yellen, an Obama appointee, went along with four interest rate hikes, but she was much more cautious about rate increases than many other economists.

…click on the above link to read the rest of the article…

 

The Two Janet’s And The Perfect Storm Ahead

The Two Janet’s And The Perfect Storm Ahead

The Bloomberg news crawler this morning is heralding the heart of our thesis: Namely, that “flush with cash from the tax cut”, US companies are heading for a “stock buyback binge of historic proportions”.

This isn’t a “told you so” point. It’s dramatic proof that corporate America has been absolutely corrupted by the Fed’s long-running regime of Bubble Finance. Undoubtedly, the C-suites view the asinine Trump/GOP tax cut not as a green light to invest and build for the long haul, but as manna from heaven to pump their faltering share prices in the here and now.

And we do mean a gift just in the nick of time. The giant Bernanke/Yellen financial bubble is finally springing cracks everywhere, putting corporate share prices and executive stock option packages squarely in harms’ way.

So what could be more timely and efficacious than an enhanced, government debt-financed wave of stock buybacks to rejuvenate the speculative juices on Wall Street and embolden the robo-machines and punters for another round of buy-the-dip?

Indeed, corporate stock buying is now cranking at a $1 trillion annual rate or nearly double the rate of the last several years. That huge inflow of cash and encouragement to Wall Street will undoubtedly break the market’s fall in the short-run; and over the next several quarters, perhaps, enable an extended stop-and-start stepwise decline rather than a sudden sharp plunge as in the fall-winter of 2008-09.

It also underscores why the Paul Ryan school of conservative policy wonks got it so wrong on the corporate rate cut. They still dwell in a pari passu world where higher after-tax rates of return would, in fact, stimulate increased investment, growth, employment and income.

…click on the above link to read the rest of the article…

Danielle DiMartino Booth: Don’t Count On The Powell Fed To Rescue The Markets

Danielle DiMartino Booth: Don’t Count On The Powell Fed To Rescue The Markets

The new Fed Chair may break from his predecessors

The recent gut-wrenching drop in asset prices began on the first day of the job for new Federal Reserve Chairman Jerome Powell.

How is Mr. Powell likely to react to a suddenly sick-looking market? Will he step in forcefully to reassure investors that there’s a “Powell put” in place as a backstop?

To address these questions, former analyst at the Federal Reserve Bank of Dallas, Danielle DiMartino Booth, returns to the podcast this week. In her opinion, having studied Powell’s previous statements, she thinks those expecting him to continue the market support his predecessors provided will likely be quite disappointed.

Powell appears to be no large fan of continued quantitative easing, and has long been on the record as concerned about the eventual pain its unwind will cause. He very well may resist riding to the market’s rescue at this time, allowing natural market forces to finally have their way:

Look, this is a message that market participants do not want to hear: It is not the Federal Reserves job to put a floor under risky asset prices.

Compare and contrast Jerome Powell’s silence in the wake of the flash crash on his first day at work to Alan Greenspan — who got on an airplane the day after the Black Monday crash of 1987, canceling an appearance he was to have made, and reassuring the markets with a statement on Tuesday morning that the Federal Reserve was standing by and ready and willing and available to satisfy any kind of disruption in the banking and financial systems. That was the day — October 20, 1987 — that the Greenspan put was born.

…click on the above link to read the rest of the article…

The Debt Beneath

The Debt Beneath

Debt is irrelevant and matters not. It’s different this time. That’s the message from politicians, markets and participants. Tax cuts pay for themselves (they do not), leverage doesn’t matter (it does) and the increased costs of servicing the debt as a result of rising rates will be offset by imaginary real wage growth to come (they won’t). But the calmest market waters in history continue to keep these illusions alive as asset prices keep levitating from record to record.

Debt does matter and it was ironically left to Janet Yellen to voice any remnant concerns about the sustainability of debt to GDP: “It’s the type of thing that should keep people awake at nightshe said.

With good reason:

After all the debt burden has never been higher and rates, following years of enabling the largest debt expansion in human history, are starting to rise in the US. In the larger historic context rates are still low, but let’s be clear, they are rising:

And with rising rates come questions of the sustainability of servicing incredibly high debt loads.

The worldwide equity rally since the early 2016 lows has resulted in a massive increase in the market capitalization of global asset prices which have increased by over $25 trillion in value since then. As discussed in my 2017 Market Lessons US market capitalization is now north of 143% of US GDP.

Low rates and free money in form of global QE and now US tax cuts make it all possible and consequence free. But is it?

Let’s take a look at the leveraging game over the past 2 years since this is when the most recent rally began. And note in many cases we don’t have full 2017 data yet so I’m using the running 2 year data where I can pull it. The trend is the same: Up, up and away.

…click on the above link to read the rest of the article…

2017 Year In Review

Tortoon/Shutterstock

2017 Year In Review

Markets fiddle while Rome burns

Every year, friend-of-the-site David Collum writes a detailed “Year in Review” synopsis full of keen perspective and plenty of wit. This year’s is no exception. As with past years, he has graciously selected PeakProsperity.com as the site where it will be published in full. It’s quite longer than our usual posts, but worth the time to read in full. A downloadable pdf of the full article is available here, for those who prefer to do their power-reading offline. — cheers, Adam

Introduction

“He is funnier than you are.”

~David Einhorn, Greenlight Capital, on Dave Barry’s Year in Review

Every December, I write a survey trying to capture the year’s prevailing themes. I appear to have stiff competition—the likes of Dave Barry on one extreme1 and on the other, Pornhub’s marvelous annual climax that probes deeply personal preferences in the world’s favorite pastime.2 (I know when I’m licked.) My efforts began as a few paragraphs discussing the markets on Doug Noland’s bear chat board and monotonically expanded to a tome covering the orb we call Earth. It posts at Peak Prosperity, reposts at ZeroHedge, and then fans out from there. Bearishness and right-leaning libertarianism shine through as I spelunk the Internet for human folly to couch in snarky prose while trying to avoid the “expensive laugh” (too much setup).3 I rely on quotes to let others do the intellectual heavy lifting.

“Consider adding more of your own thinking and judgment to the mix . . . most folks are familiar with general facts but are unable to process them into a coherent and actionable framework.”

~Tony Deden, founder of Edelweiss Holdings, on his second read through my 2016 Year in Review

“Just the facts, ma’am.”

~Joe Friday

…click on the above link to read the rest of the article…

Weekly Commentary: Chronicling for Posterity 

Weekly Commentary: Chronicling for Posterity 

Janet Yellen’s Wednesday news conference was her final as Fed chair. Dr. Yellen has a long and distinguished career as an economist and public servant. Her four-year term at the helm of the Federal Reserve is almost universally acclaimed. History, however, will surely treat her less kindly. Yellen has been a central figure in inflationist dogma and a fateful global experiment in radical monetary stimulus. In her four years at the helm, the Yellen Fed failed to tighten financial conditions despite asset inflation and speculative excess beckoning for policy normalization.

Ben Bernanke has referred to the understanding of the forces behind the Great Depression as “the holy grail of economics.” When today’s historic global Bubble bursts, the “grail” quest will shift to recent decades. Yellen’s comments are worthy of chronicling for posterity.

CNBC’s Steve Liesman: “Every day it seems we look at the stock market, it goes up triple digits in the Dow Jones. To what extent are there concerns at the Federal Reserve about current market valuations? And do they now or should they, do you think, if we keep going on the trajectory, should that animate monetary policy?”

Chair Yellen: “OK, so let me start, Steve, with the stock market generally. I mean, of course, the stock market has gone up a great deal this year. And we have in recent months characterized the general level of asset valuations as elevated. What that reflects is simply the assessment that looking at price-earnings ratios and comparable metrics for other assets other than equities, we see ratios that are in the high end of historical ranges. And so that’s worth pointing out.

…click on the above link to read the rest of the article…

Pecking Order

Out of all the animals we keep on our “farm”, chickens are the only ones that bring me no joy. Chickens are, by nature, brutal and cruel. They will torture the weak to death with their pecks, not because they have to, but because they can. It’s the way their brains are hard-wired, and it works for them, as a species. So I pretend that chickens aren’t evil and I’m not complicit. Because I really like the eggs.

We are trained and told that the pecking order is not a real and brutal thing in the human species. This is a lie. It is an intentional lie, one that we pretend isn’t evil and where we are not complicit.

Because we really like the eggs.

And that’s the news from Lake Wobegon, where all the women are strong, all the men are good-looking, and all the children are above average.

― Garrison Keillor

We can’t all be rich.

We can’t all be famous.

We can’t all be Someone Who Matters to the World.

[Team Elite Narrator: OR CAN WE?]

 

Blake: Put. That coffee. Down. Coffee’s for closers only. You think I’m f**king with you? I am not f**king with you. I’m here from downtown. I’m here from Mitch and Murray. And I’m here on a mission of mercy. Your name’s Levine? You call yourself a salesman, you son of a bitch?
Moss: I don’t gotta sit here and listen to this s**t.
Blake: You certainly don’t, pal, ’cause the good news is — you’re fired. The bad news is — you’ve got, all of you’ve got just one week to regain your jobs starting with tonight. Starting with tonight’s sit. Oh? Have I got your attention now? Good. ‘Cause we’re adding a little something to this month’s sales contest. As you all know, first prize is a Cadillac Eldorado. Anyone wanna see second prize? Second prize is a set of steak knives. Third prize is you’re fired. Get the picture? You laughing now? You got leads. Mitch and Murray paid good money for their names. You can’t close the leads you’re given, you can’t close s**t. You ARE s**t! Hit the bricks, pal, and beat it ’cause you are going OUT!
Glengarry Glen Ross (1992)

The truth is that unless you are really rich, you work for Mitch & Murray. Yes, that includes you, Vox writer changing the world one smarter-than-thou opinion at a time. Yes, that includes you, tech start-up developer kicking back in your flair-bedecked WeWork cubicle.

…click on the above link to read the rest of the article…

Weekly Commentary: China Initiating a Global Bear Market?

Weekly Commentary: China Initiating a Global Bear Market?

Chair Yellen is widely lauded for her accomplishments at the Federal Reserve. For the most part, her four-year term at the helm of the Fed boils down to four (likely soon to be five) little rate hikes over 24 months. Most lavishing praise upon Janet Yellen believe she calibrated “tightenings” adeptly and successfully. Yet financial conditions have obviously remained much too loose for far too long. This predicament was conspicuous in the markets this week. A test of a North Korean ICBM that could reach the entire U.S. modestly pressured equities for about five minutes – then back to the races.
Bubble Dynamics are in full force. The Dow gained 674 points this week. The Banks were up 5.8%, the Broker/Dealers gained 4.5% and the Transports jumped 5.9%. The Semiconductors were hit 5.6%.  Bitcoin traded as high (US spot) as $11,434 and as low as $9,009 in wild Wednesday trading. Curiously, the VIX traded up 15% to 11.43.

It used to be that markets would fret the Fed falling “behind the curve,” fearing central bankers would be compelled to employ more aggressive tightening measures. Not these days. Any fear of central bank-imposed tightening is long gone. There is little fear of anything.

I recall writing similar comments back with the Bush tax cuts: “I’m as much for lower taxes as anyone. Yet I question the end results when tax cuts exacerbate late-stage Bubble excess.” And I seriously question the merits of aggressively slashing corporate tax rates when the federal government is $20 TN in debt. One of these days the bond market is going to wake up and impose some much need fiscal discipline. In a different era, the Treasury market would be forcing some realism upon Washington politicians (and central bankers).

…click on the above link to read the rest of the article…

US Gross National Debt Jumps $723 billion in 12 Weeks, Yellen “Very Worried about Sustainability of US Debt Trajectory”

US Gross National Debt Jumps $723 billion in 12 Weeks, Yellen “Very Worried about Sustainability of US Debt Trajectory”

But only a few lost souls in Congress care.

Even as lawmakers are trying to cobble together a tax-cut bill that would cut revenues by $1.5 trillion over ten years, the gross national debt has spiked $723 billion over the past 12 weeks since Congress suspended the “debt ceiling.” It just hit $20.57 trillion, or 105% of GDP.

Over the past six years, since November 2011, the gross national debt has surged nearly 40%, or by $5.8 trillion. Back in 2011, gross national debt amounted to 95% of GDP. Before the Financial Crisis, it was at 63% of GDP. There are no signs that the relentless rise in the debt is slowing down. On the contrary – the tax cuts are going to steepen the curve:

In the chart above, note the last three debt-ceiling fights – the flat lines in 2013, 2015, and 2017, followed each time by an enormous spike when the debt ceiling was lifted or suspended, and when the “extraordinary measures” with which the Treasury keeps the government afloat were reversed.

And the Fed is getting increasingly nervous about the “sustainability” of this debt.

There are only a few lawmakers left in Congress that have a sense of fiscal responsibility. One of the lost souls is Senator Bob Corker, a Republican from Tennessee, who, to address his anxieties about the deficit and the debt, wants to add a provision to the tax-cut bill that would raise taxes automatically if the economy doesn’t hit certain growth targets in the future. This “trigger” is designed to slow by a smidgen the relentless rise of the national debt. He has come under withering criticism for it from Republican lawmakers and conservative lobbying groups.

…click on the above link to read the rest of the article…

Political Economics

Political Economics

Who President Trump ultimately picks as the next Federal Reserve Chairman doesn’t really matter. Unless he goes really far afield to someone totally unexpected, whoever that person will be will be largely more of the same. It won’t be a categorical change, a different philosophical direction that is badly needed.

Still, politically, it does matter to some significant degree. It’s just that the political division isn’t the usual R vs. D, left vs. right. That’s how many are making it out to be, and in doing so exposing what’s really going on.

As usual, the perfect example for these divisions is provided by Paul Krugman. The Nobel Prize Winner ceased being an economist a long time ago, and has become largely a partisan carnival barker. He opines about economic issues, but framed always from that perspective.

To the very idea of a next Fed Chair beyond Yellen, he wrote a few weeks ago, “we’re living in the age of Trump, which means that we should actually expect the worst.” Dr. Krugman wants more of the same, and Candidate Trump campaigned directly against that. As such, there is the non-trivial chance that President Trump lives up to that promise.

Again, it sounds like a left vs. right issue, but it isn’t. The political winds are changing, and the parties themselves are being realigned in different directions (which is not something new; there have been several re-alignments throughout American history even though the two major parties have been entrenched since the 1850’s when Republicans first appeared). Who the next Fed Chair is could tell us something about how far along we are in this evolution.

What Krugman wants, meaning, it is safe to assume, what all those like him want, is simple: success. He believes that the central bank has given us exactly that, therefore it is stupid to upset what works.

…click on the above link to read the rest of the article…

Richard Sylla: 70% to 80% Chance of Another Global Financial Crisis

Richard Sylla: 70% to 80% Chance of Another Global Financial Crisis

When Janet Yellen, Chairman of the US Federal Reserve, said in June that she does not expect another financial crisis in our lifetime, eyebrows were raised.

None more so than Richard Sylla’s.

Sylla, a professor emeritus at the Stern School of Business and co-author with Sydney Homer of the magisterial A History of Interest Rates, has studied past business cycles. He is thus able to put today’s events in a broader context.

“A lot of the same things are going on right now as before the 2008 crisis,” said Sylla, who puts the probability of a repeat, in our lifetimes, at between 70% and 80%.

“People figure that central banks avoided a Great Depression last time and can do it again,” said Sylla. “So they are not worried.”

The most important price in the economy

Sylla’s work is particularly important because interest rates, which have a direct influence on all economic activity, are simply the most important prices in the economy.

For example, the average American who bought a $250,000 home and financed it for 30 years at 3.83%, would pay just over $175,000 interest during that time. That’s almost as much as the cost of the house itself.

Interest rate levels also affect the real prices of cars, as well as all other consumer, business and government purchases – hence the ever-present temptation among policy-makers to keep rates low.

US Treasuries: yields at least 8% in a free market?

History provides a hint of the scale of the Fed’s current interventions, which could be depressing interest rates by at least 5.0 percentage points across the yield curve. The result is the transfer of trillions of dollars a year from American savers to borrowers.

…click on the above link to read the rest of the article…

Nonsensical Global Worries Over Subdued Inflation: Yellen, Draghi, Kuroda

Central bank presidents at the Fed, the ECB, and Bank of Japan are all concerned over low inflation. The Fed wants to hike anyway, but the Bank of Japan will keep pursuing aggressive monetary easing. Meanwhile, asset prices are in the biggest ever bubble.

Bank of Japan

Bank of Japan Governor, Haruhiko Kuroda, says the BOJ Will Keep Pursuing Aggressive Monetary Easing.

“The Bank of Japan will consistently pursue aggressive monetary easing with a view to achieving the price stability target at the earliest possible time,” Mr. Kuroda said at a meeting of the Group of 30 in Washington.

“Achieving the 2% target is still a long way off,” Mr. Kuroda said.

“Once price increases become widespread, medium- to long-term inflation expectations for firms and households are expected to rise gradually and actual inflation will increase toward 2%,” he said.

ECB

‘It’s going to take time. We have got to be persistent with our monetary policy,” Draghi said on the sidelines of the meetings of the International Monetary Fund and World Bank in Washington, reported The Wall Street Journal.

Draghi gave an upbeat outlook on the 19-nation eurozone economy, but said inflation remains too weak, possibly due to subpar wage growth, he said. The ECB’s program of buying 60 billion euros ($70.9 billion) of bonds a month is set to expire in December. Policy makers are expected at a meeting on Oct. 26 to announce plans to begin scaling down the monthly purchases next year, but Draghi suggested the decision could be delayed again, the report said.

Fed

…click on the above link to read the rest of the article…

Olduvai IV: Courage
In progress...

Olduvai II: Exodus
Click on image to purchase

Click on image to purchase @ FriesenPress