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Should Bank Regulation be Relaxed?

August 27, 2017

SHOULD BANK REGULATION BE RELAXED?

Leading Federal Reserve policymaker Stanley Fischer has hit out at plans to unwind banking regulation, calling it a “terrible mistake.”

President Donald Trump and republican politicians have advocated the repeal of Dodd Frank, a major piece of post-crisis legislation, and the loosening of some capital and liquidity requirements in a bid to ease banks’ ability to lend.

In an interview with the Financial Times on August 16 2017, Fischer said that loosening capital and liquidity requirements is dangerous and could lead to a new economic crisis. “I find that really, extremely dangerous and extremely short-sighted.”

Whilst Fischer is not a friend of a free market, in this case we are in agreement with Fischer’s comment.

True free financial environment versus financial environment controlled by central bank

The proponents for less control in financial markets hold that fewer restrictions imply a better use of scarce resources, which leads to the generation of more real wealth.

It is true that a free financial environment is an agent of wealth promotion through the efficient use of scarce real resources, whilst a controlled financial sector stifles the process of real wealth formation. The proponents of deregulated financial markets have overlooked the fact that the present financial system has nothing to do with a free market.  What we have at present is a financial system within the framework of the central bank, which promotes monetary inflation and the destruction of the process of real wealth generation through fractional reserve banking. In the present system the more unrestricted the banks are the more money out of “thin air” generated and hence greater damage inflicted upon the wealth generation process. (Note that in the genuine free banking i.e. the absence of the central bank, the potential for the creation of money out of “thin air” is minimal).

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

Fischer Admits Fed Is Clueless About What Happens Next

February 11, 2017

Fischer Admits Fed Is Clueless About What Happens Next

In a moment of rare honesty, during a conference in England, Fed Vice Chair Stanley Fischer admitted that the Fed is clueless about what happens next, blaming the Fed’s lack of clarity on Trump and saying there is significant uncertainty about U.S. fiscal policy under the Trump administration.

“There is quite significant uncertainty about what’s actually going to happen, I don’t think anyone quite knows what’s going to come out of the process which involves both the administration and Congress in the deciding of fiscal policy and a variety of other things.” Fischer said in response to audience questions about the Fed’s next steps. “At the moment we are going strictly according to what we see as our responsibility according to law.”

Traders have echoed Fischer’s confusion, with the Trump rally sputtering in on-again, off-again mode in recent weeks, demanding details about Trump’s various economic policies. Following the December rate hike, Fed officials have given no indication on the timing of their next hike in response to improvements in the U.S. economy, which however have manifested mostly in the area of “soft” indicators, such as sentiment and confidence surves. In recent days, even these have started to roll over, as the Trump honeymoon slowly ends and the euphoria over the Trump victory – mostly among Republicans as the latest UMichigan consumer sentiment survey showed – begins to fade. 

Of course, “confusion” at the Fed is a sobering and welcome change from its traditional stance of being “certain” about the future, if constantly wrong.

Ironically, none other than the Fed’s own James Bullard trolled his institution, commenting on the Fed’s chronic inability to accurately predict the future and be consistently wrong in its forecasts in a speech on Friday laying out his “2017 Outlook for U.S. Monetary Policy.”

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

 

Stanley Fischer’s Novel Idea: “We’d Be Better Off With A Price For Using Money”

October 1, 2016

Stanley Fischer’s Novel Idea: “We’d Be Better Off With A Price For Using Money”

The end game of central bank lunacy is surely near. Even the Fed heads appear to be mumbling bits and pieces of truth in public.

Former Philly Fed President Charles Plosser, for example, told Bloomberg TV this morning that central bankers “wring their hands all the time,” are very “concerned about credibility,” and are “pretty good at conjuring up reasons not to act.”

Having screwed up his mutinous courage, he then let loose with words that haven’t been heard from a central banker in decades, if ever:

The Fed “shouldn’t be afraid a recession might come,” he exclaimed, “there’s a real problem here”. 

Then again, Plosser recently retired and perhaps it wasn’t all that voluntary. By contrast, Stanley Fischer is in line to takeover the joint, and perhaps soon.

That’s because Janet Yellen is surely finished whether the Donald wins or loses. Her dithering and double-talk have become a laughingstock even in the Wall Street casino.

So you might have thought the good professor from MIT—-by way of the IMF and Bank Of Israel—– would be carefully parsing his words. Instead, he was apparently moved during a speech to economics students to confess that he is more or less flummoxed by his own policies:

WASHINGTON—Federal Reserve Vice Chairman Stanley Fischer on Tuesday expressed frustration with ultralow interest rates, saying they should rise over time.

“It bothers me, it really bothers me,” he said when asked about low rates at an event for economics students at Howard University in Washington…….I don’t like it, but I don’t want to raise the interest rate too much. I think we should at some point. I don’t know when,” he said. “The interest rate I believe is not at zero at a normal level and it should be [normal] at some point, not immediately.”

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

Ken Rogoff’s Government Debt Default Plan

September 17, 2016

Ken Rogoff’s Government Debt Default Plan

 

Ken Rogoff is by all accounts a brilliant man. The Harvard professor and former IMF chief economist is a chess grandmaster. His thesis committee included current Fed vice-chair Stanley Fischer. But like many survivors of Ivy League hoop jumping, the poor fellow appears to have emerged punch drunk.

That’s the only conclusion to be drawn from Rogoff’s new book, The Curse of Cash , which, in effect, proposes a ban on paper currency.

It’s terrifying piece of work, for several reasons.

First, the cashless society, which Rogoff proposes in order to make it easier for the US government to confiscate private wealth, in effect, amounts to an admission that Washington can’t pay back its debts.

Second, the fact that Rogoff uses the fight against “terrorism” and “crime” arguments in selling his proposals to the public – justifications which he as a mathematician should know are farcical – suggest that his arguments hide another agenda.

Third, and most important, is the fact that not only would banning cash not achieve Rogoff’s objectives – it could cause irreparable harm to the dollar’s role in the American economy and as a reserve currency.

Let’s look at these arguments one at a time.

Enforced negative rates ARE debt defaults

Rogoff’s “cashless society” is an elegant solution to a key problem bedeviling the Federal Reserve: with interest rates at the zero bound, the US central bank has no ammunition left to fight the next recession – because if cuts rates below zero, savers will withdraw their cash and put it under their mattresses.

“In principle, cutting interest rates below zero ought to stimulate consumption and investment in the same way as normal monetary policy,” Rogoff writes. “Unfortunately, the existence of cash gums up the works.”

That argument is spurious at best.

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

Gold Sector Correction – What Happens Next?

September 2, 2016

Gold Sector Correction – What Happens Next?

The Long Awaited Correction is Underway

The gathering of central planners at Jackson Hole was widely expected to bring some clarity regarding the Fed’s policy intentions. This is of course a ridiculous assumption, since these people have not the foggiest idea what they are doing or what they are going to do next. Like all central planners, they are forever groping in the dark.

U.S. Federal Reserve Chair Janet Yellen (L) congratulates Stanley Fischer as he is sworn in a vice chairman at the U.S. central bank in WashingtonHi there! Stanley Fischer finds chief central planner Janet Yellen deep in the bowels of the Eccles building. In Jackson Hole, they played “good cop, bad cop”.

Nevertheless, financial markets keep reacting to their words as if they actually meant something – and of course we have to deal with that reaction, regardless of how irrational it is.

As we have mentioned many times during the gold bear market from 2011 to 2015, it was primarily the threat of a rate hike that put pressure on gold and supported the US dollar. We argued that once the Fed finally dared to implement a baby step rate hike, gold would very likely rally in a “buy the news” type response – which indeed happened.

Ms. Yellen’s speech at Jackson Hole (we will post a little post mortem on that gathering of interventionists soon) was still deemed non-committal enough by the markets. Her deputy Stanley Fischer attended the event as well though, and he started mumbling something about rate hikes.

Pure fantasy this may well turn out to be, but rate hike odds as reflected in the Federal Funds futures market shifted anyway. The gold market in turn still seems to care a lot about these shifts, in spite of the fact that trading in the underlying federal funds market is essentially dead as a doornail (with trillions in excess reserves, banks have no need for interbank borrowing). The threat of a rate hike was deemed to have returned.

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

Slouching Toward The Dark Side

February 2, 2016

Slouching Toward The Dark Side

Last Wednesday we noted there is something rotten in the state of Denmark, meaning that the world’s great potemkin village of Bubble Finance is unraveling. The evidence piles up by the day.

To wit, now comes still another story about the Red Paddy Wagons rolling out in China. This time they are rounding-up the proprietors of a $7.6 billion peer-to-peer (P2P) lending Ponzi called Ezubao Ltd.

Ezubo investors lined up outside a government office in Beijing last month; having shut down the online peer-to-peer investing platform in December, authorities were reported Monday to have declared Ezubo a Ponzi scheme and arrested 21 suspects linked to it and its parent. Ezubo investors lined up outside a government office in Beijing last month; having shut down the online peer-to-peer investing.

The particulars of this story are worth more than a week of bloviating by the Wall Street economists, strategists and other shills who visit bubblevision the whole day long. That’s because it exposes the rotten foundation on which the entire Red Ponzi and the related world central bank regime of Bubble Finance is based.

Needless to say, these dangerous, unstable and incendiary deformations are not even visible to the Keynesian commentariat and policy apparatchiks. They blithely assume that what makes modern economies go is the deft monetary, fiscal and regulatory interventions of the state. By their lights, not much else matters——and most certainly not the condition of household, business and public balance sheets or the level of speculation and leveraged gambling prevalent in financial markets and corporate C-suites.

As that pompous fool and #2 apparatchik at the Fed, Stanley Fischer, is wont to say—–such putative bubbles are just second order foot faults. These prosaic nuisances are not the fault of monetary policy in any event, and can be readily minimized through a risible scheme called “macro-prudential” regulation.

After all, if the Keynesians had any inkling that debt was a problem they wouldn’t have attempted to radically subsidize it with 84 straight months of ZIRP.

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

 

Negative Interest Rates Already in Fed’s Official Scenario

February 2, 2016

Negative Interest Rates Already in Fed’s Official Scenario

But forget QE-4.

The Germans, with Teutonic precision, call them “Punishment Interest.” Negative interest rates are spreading from the ECB’s negative deposit rate across the bond market and to some savings accounts in the Eurozone. The idea is to enrich existing bond holders and flog savers until their mood improves. Stock prices are allowed to get crushed by reality.

Negative interest rates destroy one of the most essential mechanisms in an economy: the pricing of risk. Investors end up taking huge risks with no reward. Many of them will get cleaned out down the road.

In Switzerland, punishment interest already causes “perverse unpredictable effects,” as mortgage rates have started to soar. It’s wreaking havoc in Denmark and Sweden. Bank of Canada Governor Stephen Poloz let the idea float that he’d unleash punishment interest to destroy the Canadian dollar. The Bank of Japan announced Friday morning – timed for maximum market effect – that it too would inflict negative interest rates on its subjects.

In the US, Ben Bernanke has been out there preaching to the choir about them. Over-indebted corporate America, except for the banks, would love this absurdity; it would allow them to actually make money off their mountain of debt.

“Potentially anything – including negative interest rates – would be on the table,” Fed Chair Janet Yellen told a House of Representatives committee in early November.

Fed Vice Chair Stanley Fischer has been publicly obsessing about them for a while. Monday, during the Q&A after his speech at the Council on Foreign Relations, he said that negative interest rates are “working more than I can say I expected in 2012.”

It seems to be just talk. But negative interest rates are already baked into the official scenario for 2016.

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

The Endless Emergency—–Why It’s Always ZIRP Time In The Casino

September 9, 2015

The Endless Emergency—–Why It’s Always ZIRP Time In The Casino

Based on the headline from the latest Jobs Friday report you wouldn’t know that we are still mired in an economic emergency—–one apparently so extreme that it might entail moving to the 81st straight month of zero interest rates at next week’s FOMC meeting. After all, the unemployment rate came in smack-dab on the Fed’s full-employment target at 5.1%.

But that’s not the half of it. The August unemployment rate was also in the lowest quintile of modern history.

That’s right. There have been 535 monthly jobs reports since 1970, yet in only 98 months or 18% of the time did the unemployment rate post at 5.1% or lower.

Monthly Unemployment Rate Below And Above 5.1% Since 1970

In a word, the official unemployment rate is now in what has been the macroeconomic end zone for the past 45 years. Might this suggest that the emergency is over and done?

Not at all. The talking heads have been out in force insisting on yet another deferral of “lift-off” on the grounds that the economy is allegedly still fragile and that the establishment survey number at 173,000 jobs came in on the light side. Even the so-called centrists on the Fed—–Stanley Fischer and John Williams—–have gone to full-bore, open-mouth, two-armed economist mode, jabbering incoherently while they await more “in-coming” economic data.

Self-evidently, the only “incoming” information that can matter between now and next Wednesday is the stock market averages. To wit, if last October’s Bullard Rip low on the S&P 500 holds at 1867, the FOMC will declare “one and done”, at least for the year; and if the market succumbs to another spot of vertigo, the Fed will concoct yet another lame excuse for delay.

Indeed, the Fed’s true Humphrey-Hawkins target is transparent. Namely, avoidance of a “risk-off” hissy fit at all hazards.

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

 

 

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