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Populism In Our Time – “The Status Quo Is The Fundamental Problem”
Populism In Our Time – “The Status Quo Is The Fundamental Problem”
“Be even more suspicious…of all those who employ the term we or us without your permission. This is another form of surreptitious conscription, designed to suggest that we are all agreed on our interests and identity.”
– Christopher Hitchens
Merriam-Webster defines populist as “a believer in the rights, wisdom and virtues of the common people”, and when the word is capitalized: “a member of a U.S. political party formed in 1891 primarily to represent agrarian interests and to advocate the free coinage of silver and government control of monopolies”. The first definition seems to be the very point of representative government; the latter what happens when representative government is no longer representative.
The use of the word “populist” among professional politicos implies an off-the-run candidate or leader with ill-intent – an irreverent voice deigning to challenge established institutions by speaking directly to the deplorable rabble, bypassing the narrative perpetuated by vast political and media infrastructures. Those inclined towards transitive logic might infer that governments and the Fourth Estate propose, but are not structured and do not work, to serve the rights, wisdom and virtues of commoners.
We won’t get idealistic about democracy or the gaping separation between political rhetoric and execution. In non-revolutionary times (about 99.9% on a timeline) governments serve the privileged. It is what they do. Political leaders throw bones to commoners, providing bread, circuses and welfare – distractions eminently better than brioches chucked at them by Marie Antoinette, but decidedly worse than most people’s conception that their government abides by the principle of equal access for all.
Liberal democracies are like major medical insurance policies. They will, in the end, protect freedom and most liberties, but they do not provide preventative health care. (Indeed, as their promotion of systemic debt shows, they are not above distributing the fiscal equivalent of cigarettes to their citizens.)
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Traveling Circus
Traveling Circus
After Wednesday’s policy statements by the Fed and Bank of Japan, a harsh light is being shined on the incredible nature of their communications. It would be wise in the current environment to structure investment portfolios with a pro-volatility bias.
Central banks in G7 economies have been carrying a heavy load for a very long time, especially noticeable to all since 2009. Zero and negative sovereign interest rates, asset purchase programs and whack-a-mole currency devaluations have avoided a counterfactual that would have included credit exhaustion, debt deflation and economic contraction.
Their now conventional unconventional monetary policies have been overlaid by communications policies that have fostered a narrative of economic normality and cyclicality. It all seems rather disingenuous given their successful coup de marché, and maybe a bit delusional too given their serious demeanors discussing Philips curve stuff in the face of balance sheet time bombs.
And now…central banks seem exhausted too, not only in terms of being able to stimulate consumption and levitate asset prices, but also in terms of their communications policies that suggest they can.
The BOJ may have jumped the shark when it embarked on a new program called “QQE with yield curve control” whereby it will pin 10 year JGB yields at 0%. The BOJ also signed on to a new program called “inflation overshooting commitment” whereby it will keep creating sufficient base money until CPI inflation exceeds 2%. Let there be no mistake: this is formalized QE Infinity.
It was a tacit admission that lowering funding rates further would have no stimulative impact on the Japanese economy, and that all it can do at this point is expand the size of its balance sheet. BOJ watchers do not understand why more attention wasn’t paid to the short end of the curve, which would be easier to manage.
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Shuffling The Deckchairs On The USS Perpetual Growth
Shuffling The Deckchairs On The USS Perpetual Growth
“Full speed ahead” Skipper Yellen barked to her economates, unperturbed by ominous radar images or the uselessness of econometric expertise at the zero bound, unmindful of passenger dysentery because 95.1% of the ship’s births were full.
“Look at all this liquidity!” she likely informed Captain Blithely, her commander in chief on shore, who had spent his presidency too disengaged of economic matters (or too politically astute) to have a cogent public thought on the matter, or perhaps smart enough to figure out everyone in Washington answers to the banks and that fixing their collateral damage social programs would be the best he could hope to do.
Indeed, the Fed Chair had gone rogue among her peers, charting her central bank’s shipping lane on a divergent path from her counterparts, Draghi and Kuroda, who were steering their monetary fleets to port. Captain Yellen seemed oblivious to the economic (and rhetorical) dangers of relying on consumption: an economy should not be beholden to eating its own productive cells.
We have argued there could be only one reason the Fed would want to hike rates: it is now responsible for US dollar policy and it wants a strong one to weaken other currencies, to prop up exporting economies, and to attract global capital and deposits to the US. Alas, the wind just died – not just for the US, but for all ships at sea.
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