How We Got Here: The Fed Confuses Itself Part 3

Submitted by Jeffrey Snider  –  Alhambra Investment Partners

I was rather content to let the matter lie after devoting a couple of lengthy expositions to it, but the Fed has its own way of confirming every charge. I am writing again about the fact that the assumed monetary agency was quite curious about the dramatic changes in banking and money at one point in the not-so-distant past only to be fixated not long after with only avoiding it. It would have been hard not to notice the eurodollar’s first appearance on the global financial stage given that it replaced the gold exchange standard under Bretton Woods. However, it was safely tucked by monetary orthodoxy into the box of benignity and the Fed went on the rest of the 1980’s and into the 1990’s confident about all sorts of economic and financial control.

There were numerous reasons to think all that misplaced even as the 1980’s continued on, but by the middle 1990’s it had become undeniable – though still nothing was done about it. I continue to refer to Greenspan’s “irrational exuberance” speech, which is very well-known and persists in lore and legend, because it was actually about his mystification over “some” monetary shift. Given that his thinking within that speechtransferred toward asset bubbles with regard to such a question, I cannot fathom as to why the Fed chair or anyone else associated with the FOMC would not revisit the eurodollar notion that was once rather contentious and upfront.

That was the essence of what I have called the Fed’s 1979 warning; that monetary character and banking itself was changing and in ways that were worried not, ultimately, predictable. And by 1996, Alan Greenspan was in high disregard for how money suddenly wasn’t acting predictably (specifically, that economic and money correlations weren’t holding). As if to extend that line from 1979 through 1996 all the way to 2015, sewing up 2008 along with it, San Francisco Fed President John Williams expressed Friday the same wonderment with apparently decreasing understanding. In other words, the Fed knew somewhat of eurodollars in 1979 and has been growing only more ignorantas time has passed:

“I see this as more of a warning, a red flag that there’s something going on here that isn’t in the models, that we maybe don’t understand as well as we think, and we should dig down deep deeper and try to figure this out better,” he said during a panel discussion at the Brookings Institute in Washington.

Continue reading

Congress To Yellen: “If You Want To be Good With The Almighty, Delay Until May”

Submitted by Tyler Durden  –  ZeroHedge

While Janet Yellen has made herself ill from stressing over whether she should or should not raise rates (in December… or ever) as she weighs the economy, the market, and her credibility, Representative Brad Sherman just dropped another huge weight on her shoulders. During Yellen’s testimony this morning, having expressed notable hawkishness towards a December hike, Sherman told Yellen that God does not want her to raise interest rates until May. As one Twitter wit noted – you can’t make this stuff up.

“If you want to be good with The Almighty, you might want to delay until May.”

“God’s plan is not for things to rise in the autumn, that is why it is called fall”

QUOTE OF THE CENTURY

Submitted by Dr. Paul Craig Roberts – Institute for Public Economy

Dimitrios Konstantakopoulos Provides The Most Accurate Description Of European Politicians

“Today’s European politicians . . . are ‘test-tube politicians,’ who haven’t emerged from a process of significant political battles with worthy political oppnents, but have instead risen to power through the manipulations conjured by the strong players of the financial capital system, with the objective to control the political elite of the European continent. They are more employees than they are politicians. Moreover, their programme is not for public disclosure.  Should they discuss in public what they really want to achieve, or rather what the bankers who appointed them want to achieve, even the stones will cry out in Europe in protest against them!

China and the dollar

Submitted by Alasdair Macleod – FinanceAndEconomics.org

With the benefit of hindsight, the two-day devaluation of the yuan in mid-August might have been a masterstroke of strategy.

China executed a financial move that appeared to undermine its own position but instead created trouble for the US; how much is still to be played out. So was the devaluation a well-executed move against the dollar, or are the Chinese authorities as clueless as any other government?

For a clue about how the Chinese might approach these matters, I am indebted to Simon Hunt of Simon Hunt Strategic Services for drawing my attention to a speech by General Qiao Liang, the Peoples Liberation Army’s military strategist, delivered about six months ago. The General makes it clear that China’s external relationships are pursued through financial, not military means. China pits subtle tai chi against America’s brash pugilism. It is therefore quite possible that China’s August devaluation was planned and timed to undermine America’s financial position.

This possibility is disregarded by nearly all financial commentators, who have been fixated on the bursting of China’s credit bubble. This would be a major crisis for a western economy, but it allows China to reallocate economic resources from legacy industries towards the monumental task of developing Asia’s infrastructure with the promise of its future markets.

Regarding the August devaluation as designed to enhance the competitiveness of the Chinese currency is too simplistic. The way to look at it is China actually triggered a wide-spread revaluation of the dollar. By undermining US export markets, China has effectively taken control of America’s interest rate policy from the Fed. She has shown that China, not America, now sets the pace in the global economy. General Qiao made an interesting point in his speech: China’s Alipay alone settled more purchases by value in just one day over China’s “Valentine” holiday last November, than all US online and retail outlets over the three-day Thanksgiving holiday.

Exercising control over someone else’s currency is not an end in itself. By doing so, China has weakened the negotiating position of her suppliers of raw materials, exposing countries as diverse as Brazil and Saudi Arabia to financial chaos, because of their commitment to the US currency. By whipsawing the dollar, China has exploited the currency disparities between global trade and its financing, and has pressured her suppliers into offering favourable supply agreements. For confirming evidence, see how super-tanker day rates have soared as Saudi Arabia has cut its oil price to China, and how the copper price has held up since mid-August, suggesting there has been accumulation of this vital metal even while emerging markets slump. Continue reading

“Great Optimist” Faber Says “I Added To My Gold Position”

Submitted by Mark O’Byrne  –  GoldCore

Marc Faber, Swiss economist, forecaster, renowned investor and the original Dr. Doom, may need a new nickname.

In an interview on CNBC’s “Trading Nation,” the Gloom, Boom & Doom Report editor revealed he may not be as bearish as some may think and that he is actually a “great optimist.”

GoldCore:  Faber on his bike
Marc Faber on one of his five motorcycles

“I always tell people, ‘I am a great optimist … because one of the most dangerous things to do is to drive motorcycles in Thailand and I have five motorcycles.”

The blunt-spoken, truth-telling Faber may have helped people understand that one may be worried about the economic outlook and bearish on stocks and other markets and yet be an optimist about life and all the wonderful things it has to offer and on the human spirit and our capacity to overcome even the worst financial and economic crashes.

On the risks of being a perma bull, he warned:

“You can’t be always sitting there and saying ‘Stocks always go up, real estate always goes up’ and so forth and so on”.

“You could have zero interest rates and stocks go down – as they’ve done in Japan until three years ago. Even at these very low interest rates, something can happen and dampen the enthusiasm for equities.”

Faber admits that he is bearish on the global economy.  “I’m most gloomy about the prospects of the global economy, but it doesn’t mean that markets will go down,” he told CNBC.  But on the other hand, he says “you have the mad professors at central banks around the world who think that because of a weakening economy they have to do more [quantitative easing].” Continue reading

The Daily Debt Rattle

Submitted by Raúl Ilargi Meijer  –  The Automatic Earth

• China’s Slump Might Be Much Worse Than We Thought (Bloomberg) 
• China Burns Much More Coal Than Reported (NY Times) 
• Investors Are Way More Scared of China Than of Janet Yellen (Bloomberg) 
• Corporate Debt in China: Above Cruising Altitude (CEW) 
• A 127-Year-Old US Industry Collapses Under China’s Weight (Bloomberg) 
• Xi Says China Needs at Least 6.5% Growth in Next Five Years (Bloomberg) 
• China’s Xi Says 6.5% Annual Growth Enough To Meet Goals: Xinhua (AFP) 
• China’s Money Exodus (Bloomberg) 
• Standard Chartered’s Bad Loans Reveal Cracks in Asian Economies (Bloomberg) 
• VW Admission Suggests Cheats Went Much Further Than Diesel Emissions (Guardian) 
• VW Emissions Issues Spread to Gasoline Cars (Bloomberg) 
• VW Says Fuel Usage Understated On Some Models; Porsche Warns (Reuters) 
• Hugh Hendry: “Today We Would Advise You That You Don’t Panic!” (Zero Hedge) 
• Hugh Hendry Says “Don’t Panic”; Paul Singer Says You May Want To (Zero Hedge)
• Europe’s Biggest Banks Are Cutting 30,000 Jobs, More To Come (Bloomberg) 
• Wall Street/Washington Revolving Door More Dangerous Than Ever: Prins (Yahoo) 
• Gathering Financial Storm Just One Effect Of Corporate Power Unbound (Monbiot) 
• Merkel Warns Of Balkans Military Conflicts Amid Migrant Influx (AFP) 
• European Union States Have Relocated Just 116 Refugees Out Of 160,000 (Guardian) 
• Greek Coast Guard Says 5 Refugees Die In Boat Accident Tuesday Night (AP)