Mr. Market is Getting Frazzled Over the Fed’s Neglect of Its Pet Wishes

A brief surge of optimism, in the form of a short-lived rally in the belegured Turkish Lira and South African rand after their central banks raised interest rates to try to halt the plunge in currency values, has fizzled. And the Fed reducing its dosage of market tonic, in the form of QE, only soured investors’ already bad mood.

The defensive measures simply goosed the currencies briefly and they’ve now resumed their slides. A key observation from a Bloomberg report:

“Turkey would appear to have received the worst of both worlds,” Michael Shaoul, the New York-based chairman and chief executive officer of Marketfield Asset Management LLC, which oversees $21 billion, said in e-mailed comments. “Local economic activity can be expected to be constrained by massive monetary tightening, while foreign investors are hardly likely to be enticed by increased yields given the volatility and downside potential of the currency.”

Recall that the San Francisco Fed, in a presentation last November, highlighted the predictable outcome: that defensive measures are futile and simply feed a vicious circle:

1. Sharp steepening of local currency yield curve
2. Currency depreciation, corporate distress, freeze in corporate CAPEX, slowdown in growth
3. Runs of wholesale corporate deposits from domestic banking sector
4. Asset managers cut back positions in EME corporate bonds citing slower growth in EMEs
5. Back to Step 1, and repeat…

I suspect “sharp steepening of the local currency yield curve” is charitable, that longer-term financing has dried up (as in any quotes are indicative and there’s no meaningful funding even for stellar credits and/or the locals can’t afford those longer-term rates anyhow). In a crisis, anything but short term financing dries up pronto, and what financing there is become very expensive.

The tone of media coverage has been and remains that advanced economies should not be affected much by the emerging markets tsuris. After all, the IMF raised its growth forecast! The US is anticipated to have GDP growth of 2.8%, up 0.2% from earlier forecasts! Consumer confidence is rising and most corporations beat earnings expectations. Never mind that many lowered guidance during 4Q, so beating a phony new goal isn’t exactly a resounding accomplishment. And the central bank also seems remarkably unperturbed about the lousy state of the job market (the FOMC statement called the latest labor market data “mixed” and noted that the housing “recovery” had softened a tad. But hey, Japan’s going to grow 0.4% faster!

The reality is the central bank seems belatedly to have come to the recognition that QE was not doing anything for the real economy. In fact, a strong case can be made that is was hurting it, by lowering interest payments on safe assets, which many retirees rely on for spending. But it certainly juiced asset prices. And now that financial regulators think the banks are healthier, the Fed seems to believe they can withstand whatever losses they might take from wrong-footing bond positions.

So in the face of a supposed “recovery,” the US central bank announced it’s cutting QE even more in February, to $65 billion. US stock market investors were not happy, with losses on the day rising after the Fed’s announcement.

And as for blowback to emerging markets, the Fed has been consistent in its lack of interest for their welfare. It was unresponsive to BRIC and other central bank complaints about how hot money was distorting their economies when QE was launched. And since, as the San Francisco Fed analysis indicated, the biggest source of funds to emerging economies was international fund managers and not banks, the central bank apparently figures they and their investors can take their lumps. (Keep in mind that there can still be blowback to the banking system to the extent some of these investors were using bank funding to lever their positions, say hedge funds using prime broker lending. But until the Fed sees any shoes drop, the Fed is unlikely to let emerging markets woes factor into its decision-making).

As we stated before, the impact of QE is likely to proven to be asymmetrical. While it did quite a lot for stock prices, and provided indirect stimulus by allowing consumers to refinance mortgages at record low rates, the main effect was likely the confidence fairy. But if you don’t have meaningful financial markets assets or appreciating real estate, the reality of a tough job market and not so hot demand is going to be much more in your face. I’ve been briefly in Dallas, and even though that economy is relatively strong, the pretty-well-off locals who own businesses and talk to other local entreprenuers aren’t seeing great demand. I saw more McMansions for sale in one well-off community that I expected, and also had a buddy who is looking for an upscale rental that landlords are very willing to cut deals. So if this is how Dallas looks for the top 10% ex the 1%, it confirms the two-tier nature of this “recovery”.

Thus the Fed withdrawing QE has the potential to do more damage than whatever the benefits were. We’ll only know for sure with the fullness of time. But for the moment, Mr. Market has woken up to the fact that the Greenspan/Bernanke and presumably Yellen put is temporarily on hold, and they actually need to be mindful of downside risk for a change. That’s such a novel concept that the investors seem to be having trouble wrapping their minds around it.

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42 comments

  1. slothrop

    I’ve been warning for several months that as the Fed tapers Basel III would suck the leverage right out of the system. Here we are at the end of the 4-6 year credit cycle facing down a global liquidity crisis.

    But this time around gold is going into hiding. When gold withdraws its bid on the US dollar the Treasury market will be worth not one silver dime. Dollars will flee to oil to get gold as oil is rejecting dollars. Oil will skyrocket in dollar terms. There’s your hyperinflation.

    1. Ben Johannson

      There was no hyperinflation when oil prices increased by a factor of ten during an egit-year period in the 1970’s, no hyperinflation when prices hit $128 per barrel in 2008, and there will be no hyperinflation now. Stop trying to scare people, it isn’t helpful.

      1. slothrop

        The petrodollar (gold for oil) was put in place in the 1970s which gave Volcker the incentive to go banana republic with interest rates. That can’t happen now. Since 2008 the infrastructure to trade oil outside of the dollar has been accelerating. The dollar is toast my friend. Wait and see.

        1. Yves Smith Post author

          No, because the Chinese and much of the rest of the world depends on US deman d for exports. And the risk globally now is deflation, but you apparently haven’t gotten the memo.

          Anyone who brings up hyperinflation discredits themselves. It takes very specific conditions to produce hyperinflation, and a loss of substantial amounts of productive capacity is an essential ingredient. By contrast, the US has considerable underutilized capacity.

          As for oil, were you asleep during the last crisis? Oil went to $40 a barrel as demand cratered and was below $80 for over two years.

          1. slothrop

            Deflation in the context of loss of confidence equals inflation as commodities not government bonds become the last safe haven. Hyperinflation will come not from “money printing,” but from a collapse of confidence in the currency. Normalcy biased Americans think it can’t happen here. It will happen. Remember that the marginal bid under the dollar for the last 30 years has been set by the petrodollar, a political arrangement not an economic one, which promised cheap gold to OPEC in exchange for dollar hegemony. If you think that’s just conspiracy talk you have to explain why gold and oil have a 90% positive correlation the last 30 years, as producers have raised the price of oil in dollars to acquire the same amount of gold in dollars.

            The bottom line is that when the gold stops flowing and world starts trading oil outside of the dollar then it will collapse in value. There is your ‘specific condition.’

            1. Stelios Theoharidis

              Wait I think I saw this in an advertisement somewhere “Billionaire Predicts the coming Economic Crash”. Hide your wife, hide your kids, and if you haven’t been filling all the cavities and crevices of your home and bodies with gold from goldline investments or some other crap place that makes you pay too much for shitty coins you are doing it wrong.

              Emerging markets will go down because of the end of the currency carry trade. U.S. equities will have a correction as demand softens. Globally Europe will not do well as they continue to indirectly bailout the larger French and German banks via country bailouts on the periphery and constrain their spending thusly kicking the can down the road, nor I suspect will China due to their debt issues, thusly most of the rest of the countries will probably do poorly as well. Unemployment in the USA will continue to be a sham as participation continues to go down. But, we aren’t going to be carrying around barrels of money to buy crap made in China.

              We sit upon the most excessive economic system on the planet. We pay more for our military than the next what 20 or so countries. Americans pay the most for healthcare, cellular phones, cable service, internet. We buy boatloads of crap that we do not need. We imprison more of our people than any other country at ridiculous costs to the public purse. We have a tremendously predatory financial system and inflated government contracting and pharmaceutical industry due to either a combination of government policies or deregulation. While at the same time our energy prices, food prices, clothing, rent, and other basic necessities are some of the lowest. Our corporations avoid paying taxes like it is the plague. You don’t think there is some room there to cut costs or find money somewhere?

              I am not at all convinced that we are going into inflation conditions. When people talk to me about chaos and collapse I tell them we may end up like Latin America. With our inequality, concentration of wealth, power, land, sclerotic government, universal access to firearms, crime, etc., we are certainly trending in that direction. So we look a little more like Argentina, Brazil or Mexico than we look like Europe. While I think that is certainly bad for the United States and I don’t want it to happen, I don’t fear collapse, hyperinflation, or zombies on the streets.

        2. Ben Johannson

          Wait and see until when? If you’re going to predict such an extraordinary event then give us a time frame as well so your hypothesis can be falsifiable. How long must we wait before you’ll come back and acknowledge you were wrong?

          1. inhibitor

            What do you want, an exact date?

            An slothrop is correct: you can’t just assume the history will repeat itself in every regard. the BRIC countries have already started to move away from using the dollar in trade agreements, particularly Russia and China. And as the world runs on oil, not exports, as the petrodollar is disentangled, the US dollar will be worth less and less. Combine this with a very low confidence (globally) of the US gov, you have inflation.

            In addition:
            China is increasingly becoming unstable as their pollution hits untold levels and exports are decreasing. So whose to say there wont be a revolution coming? And how do you think the rebels will view America? There was this great quote that I can;t find, but essentially Obama insulted the Chinese by telling them to take better care of their environment. The Chinese government responded basically by saying that its the US corporations greed that is responsible for building factories so they can reap greater margins of profit. Don’t assume everything will be cheery with China, just because they need us for the exports. When their massive population starts demanding better living conditions, lets see how much they will care about America then.

  2. barrisj

    Massive whining going on at CNBC – “How could the Fed press ahead with QE wind-down in the face of falling markets?” – “‘We’ need a show of “stability”, not retreat”…yadda-yadda. The problem for “the markets” is that they continue to view the Federal Reserve as not only the ultimate backstop for colossal market effups, but the tonic to keep equities moving upwards, despite economic evidence to the contrary. I believe it’s called “having your cake and eating it”.

    1. fresno dan

      It drives me to apoplexy to listen to the CNBC types who go on about the “Free” market, and in the same breath demand the FED keep the taper going. If markets are so great, why do they need government backstops….for YEARS???
      Now Bernanke is learning that you can’t do enough for these people. Maybe he should have been able to figure that out when AIG got their bonuses.
      The question now is, after 6 years of saving the as*ses of bankers, that it was idiotic to keep the people at the FED and the banks who didn’t see the problem, and were incapable of acknowledging the real problem – massive criminality.

  3. craazyman

    Hindsight is 20/20. Except in macroeconomics when it’s 120/120. Ever notice how they can’t agree on what happened even after it happened? How can that be since it happened already? Weird.

    Anyway, that’s a question for the pundits — pundits is in air quotes — haha hahaha ahahahah! Sorry. The only real question for real people who have better things to do, like Youtube, now is: Do you plow big into out of the money puts for 300% in 38 days? Or do you keep the powder dry? I’m thinking keep it dry, but that means now is probly the time all hell breaks loose.

    1. MyLessThanPrimeBeef

      I would keep my powder dry.

      When it’s all over and done with, cash is king and one might be able to pick up a French chateau in the Loire Valley cheap.

      That’s my one hope (the other is breaking even in my Hussman fund).

      1. MikeNY

        LOL, Beef. You must be Hussman’s last client.

        I feel your pain. I’m still waiting for Grantham’s advice to make me money. Someone remind me, what’s the difference between early and wrong?

    2. MaroonBulldog

      They can’t agree on what happened, even after it happened. Until most of the evidence of what happened perishes, and the selected evidence that’s left will only support the one story they want to tell.

      1. Whine Country

        I think Ronald Regan put it well when he said: ” An economist is someone who sees something happen in the real world and sets about trying to prove it is theoretically impossible.”

  4. Chauncey Gardiner

    We live in a complicated world. Not to play devil’s advocate, but I am wondering about the responsibility of foreign CBs in the matter who have purchased US dollars and euros from their exporters in exchange for their respective domestic currencies in order to suppress the prices of their exports and their domestic wages to make their labor “more competitive”? And where have those FCBs in turn invested their US dollar and euro “Reserves”?… and who benefits and who draws the short straws?… and why was the so called “taper” deferred until now?…

    It’s all more than a bit beyond my information gathering skills and cognitive capacity. Wonder if there is a way for me to join Lady Gaga on the Virgin Galactic? Wonder if I can crowd source it?

    1. Cynthia

      The heads of the central banks all went to the same schools, all had the same professors for their Ph.D.’s, read the same economic journals, pal around at the same parties at Davos and more important, all want the same laudatory articles from the very small clutch of top economic reporters and academics. Their governments all want the same thing, which is maximum money creation and credit expansion without undue bad consequences.

      In short, what you see is the only thing you can get. They have no other playbook. They have run every one of their plays. Ben admitted to himself that they were in uncharted waters, and doubly so, given the growing ratio between financial assets and hard assets.

    2. Ben Johannson

      CBs, acting on behalf of their governments, either exchange their dollar reserves for a currency they want more, or they purchase U.S. government securities.

      The taper was delayed because the Fed was afraid long-term rates would rise and choke off demand for mortgage financing. They could prevent that and still taper but seem unaware of this ability.

    3. financial matters

      http://www.economonitor.com/blog/2011/03/the-dollar-the-rmb-and-the-euro/

      The Dollar, the RMB and the Euro
      Author: Michael Pettis · March 14th, 2011

      In fact it is ironic to me that it is considered pro-American to want the dollar to maintain its role as the world’s dominant reserve currency and anti-American to call for a change. I have a very different take. As I see it the dominant role of the dollar is as a public good provided by the US that, because a number of countries have taken to gaming the system, is proving too costly for the US.

      In other words I think the use of the dollar as the dominant reserve currency may mean slower economic growth and higher debt for the US. A lot of strange conspiracy theories center on the role of the dollar as the linchpin to American power. In a debate on a well-known current affairs program on Chinese television two years ago, a Chinese professor from a famous Beijing university assured me that American economic dominance occurred because the dollar was the world’s primary reserve currency.

      Leave aside that the US was the largest economy in the world, with the most advanced technology and the highest per capita income, by the late 19th Century, at least six or seven decades before Bretton-Woods, this is the sort of claim that can only be made by someone who has a very weak grasp of monetary economics. The strongest argument in favor of the importance to the US of the dollar’s reservestatus is that it permits the US government to fund itself cheaply, and in its own currency, with the savings of the rest of the world. But this argument may get it exactly backwards.

      –Any country with credibility and an actively traded currency can fund itself in its own currency.–

      So why do foreigners own such a large share of US government debt? Isn’t it because they have to buy US Government bonds to hold as reserves, and aren’t foreign purchases needed to make up the shortfall in US demand for government bonds?

      No. US investors can easily fund US government debt. Foreigners own US dollar assets, of which US government bonds are the safest and most liquid, because they run current account surpluses. This is true almost by definition. Countries with current account surpluses have no choice but to acquire foreign assets, and the country whose assets are thus acquired has no choice but to run the corresponding current account deficit.

      Countries whose domestic policies require large trade surpluses, in other words, must buy the assets of those countries with liquid and open asset markets that are able to run large current account deficits. In practice the US is the only economy large enough, flexible enough, and open enough to act as the counterpart to the net current account surpluses accumulated by the rest of the world.

      If countries that have accumulated massive reserves, like Japan, Germany and China, chose to diversify their holdings, or were forced to, away from the dollar, this would be tantamount to saying that the US current account deficit would have to contract and other countries would be forced into absorbing those surpluses. The US would also borrow less because a lower trade deficit would require less fiscal or household borrowing to maintain any given level of growth and employment.

      But very few other countries can absorb the US trade deficit. In that case countries that rely on large current account surpluses to absorb their excess capacity would be forced into reducing their surpluses and reducing their capacity. Their growth, in other words, would be lower.

      The US, on the other hand, would be “forced” into either higher growth or lower debt levels. This does not seem either like a good thing for surplus countries or a bad thing for the US.

      1. Fiver

        Nope. Explanation is far too linear, as in Nation A does x, to which Nation B responds with Y, while Nation C frets. I don’t accept the outcomes in his argument as necessary.

      2. Dan Kervick

        This piece seems to take accounting outcomes and treat them as causal factors: such as the idea that the US chooses to run a deficit and so other countries are compelled to absorb them.

        Another way to look at it is that because dollars are in such high demand internationally, the US is able to run current account deficits, which means more real goods enter our country than leave it.

        1. financial matters

          I see it more as an accounting identity in that surpluses need to be balanced by deficits. But I think your point is a good one as the ‘currency’ has to worth something if someone is going to give up real goods for it.

          If we look at China and the US, China is building up very large US dollar/Treasury reserves. It can’t spend them back into its own economy as that would defeat its trying to keep the value of the renminbi low to help exports.

          If we say China is making about 3% interest on those reserves it could double that by FDI (foreign direct investment) in the US. 6% would probably be a reasonable bond yield for high speed rail or other projects which could be useful to the US. This would also help support US demand for Chinese products in the transition period where China moves to more domestic consumption. It would also help the US get back on its own two feet with domestic production and demand.

          I think currencies ultimately need to be backed by economic, social and environmentally productive and sustainable activities.

  5. Cynthia

    As far as ending QE, the FED has put its big toe in the water.
    Then Yellen will think she sees a Shark fin and pull it back out.
    She’ll have to go back to her beach chair and have a Mimosa with Jamie and Lloyd.

  6. steelhead23

    As regards the effects of the taper, I believe the answer lies in the nature of QE itself. Yves, I am way out of my league here, so If I spout pure rubbish, please clean up my mess. QE was a massive financial asset purchasing program. What, precisely, did the Fed buy? Were these highly liquid, AAA rated instruments? Oh, hell no. If such assets were liquid and trading at face value, the sellers would not need the Fed to buy them. Nope, entirely in violation of its charter, the Fed bought the dregs of the financial titans. Then, because said titans had little organic use for their newfound cash, they parked it at the Fed – or fueled their proprietary trading desks. Wheeeee! Free money.

    Here is what I expect from the weaning (besides the loud temper tantrums). The value of MBS will decline – a major (and financially naive) buyer (the Fed) has left the table. The rest of the players have seen how the sausage was made. Further, the holders of this junk use it to support all sorts of things, like their VAR. As it becomes illiquid, the value will decline. Infused with “I am smarter than God” hubris I suspect the titans have not ensured that this devaluation of assets doesn’t lead to another Bear Stearns. Now comes the big effect – if the Fed is not going to absorb the risks of default, the MBS market is heading south and the costs of mortgages will go up. Sound familiar? This will drive down the price of housing – hosing everyone left in the game.

    The saddest aspect of global financial mismanagement since Sept. 2008 is that all of these efforts (ZIRP, QE, repo to infinity, austerity….) were simply attacking the symptoms of the disease – excessive credit creation, lax regulation, insider looting, and massive fraud. Yves wrote a wonderful book on the subject. What have our fearful leaders done about the disease? Very little. Hence, I expect that as tapering continues there will be a second financial crisis (or an intensification of the one we are currently in) as daisy-chains of overvalued collateral leads to margin calls, and sleepless nights for Ms Yellen and Mr. Yew.

    My greatest fear of the taper is that once the effects described above become manifest, TPTB aren’t going to want to deal with the underlying issues and will, once again, start treating the symptoms and QE will come roaring back, like greasy pizza.

    1. Ben Johannson

      The Fed has been buying mortgage-backed securities guaranteed by the government. Less liquid than reserves or Treasury’s but still high quality regardless of how the ratings agencies categorize them.

    2. James Levy

      As irrational as it seems, extend and pretend appears viable so long as all the key players stay in the game and nobody admits to the reality of the situation. The irony of ironies, however, is that if all that money created out of nothing by QE, ZIRP, and Mark to Infinity does what the government told us it was going to do–slosh around and stimulate the real economy–then all hell will break loose with hyperinflation. By sitting on the money, using it to buy their own stock, or handing it out as salaries, bonuses, and dividends the unreality can be maintained almost indefinitely. But this can only happen if the money never leaves the closed system of the corporations, banks, and 1%ers, thus keeping the economy in a coma and unemployment high. It’s a non-solution par excellence. Everyone is just waiting for some external factor, some deus ex machina, to reboot the global economy. As I’ve said before: it’s Philip II all over again, sending his armada off “in the confident hope of a miracle”.

  7. Carla

    “The saddest aspect of global financial mismanagement since Sept. 2008” happens to be that millions and millions of lives have been ruined.

    And the next crash will destroy tens of millions, perhaps hundreds of millions more perfectly innocent people who were just going on about their lives and taking care of their families as best they could, until they got the pink slip, or the foreclosure notice, or the medical bill, that wrecked everything.

    Why should those wielding the wrecking ball give a damn?

  8. allcoppedout

    We get an almost identical message in the UK. Most of us are sitting on mortgages that will sink us if interest rates return instead of QE. My view, perhaps coloured by working in countries where HR and financial strategies involve not paying the workforce for months in ‘wasta’ and ‘kafala’ systems to grim to relate (you discover staff on the brink of starvation), is that we still cannot see the underlying problems because they are so irrational and disgusting. Economics is something like trying to explain the rational and moral characters we claim to be by ignoring pornography and people trafficking.

    QE was always an accounting dodge as daft as ignoring private debt ‘because’ someone’s loan was always someone else’s asset. It is bound up in a complex system of control fraud that prevents us building on past work and instead forcing economic rent on the present and future through a money or capital system claimed to be neutral.

    We could do with an analysis that starts with the recognition most of us have no access to QE and related money-making-money systems., recognising the discourse is not unlike times of religious services or the conduct of legal proceedings in peculiar foreign languages. I’d recommend a start in legal work on our courts having little to do with rational precedent and more, say, as sites of Freudian Oedipal irrationality (see PSYCHODYNAMICS OF THE JUDICIAL PROCESS by Sahand Shaibani in Vol. 1:1 STANFORD JOURNAL OF LEGAL STUDIES). I’m not a Freud fan, but the point is economics is way less rational than mostly claimed and perhaps even than we believe. We need some metaphors.

    QE is almost certainly part of a system that keeps assets we should own under economic rent in a manner that prevents productive investment in what needs doing and what might be fun, let us be self-sustaining, leave the planet and so on. Years ago, Welsh rebels took to burning holiday cottages in protest the Welsh were left with nowhere to live. Now money stolen from Chinese workers keeps real estate prices in London massive. QE is is part of a false data set that prevents us even talking about what we should do.

    1. Moneta

      When I was in University in the early 90s in Montreal, rents were cheap. One could get a 3 1/2 for 350$, 4 1/2 for 450$ and 5 1/2 for 550$… The vacancy rate was over 10%. Rates started coming down as well as the required cash down, from 20% to 0% a couple of years ago. A lot of duplexes and fourplexes were converted into sfh. So this created the semblance of a shortage, stimulating construction. The vacancy rate dropped to less than 2% and shoddy condo towers have come up. Now we definitely have an oversupply of condos. This oversupply really took off in 2008-2009 thanks to the bailouts as our federal government used CMHC and real estate to prop up the economy in order to win their majority.

      These duplexes and fourplexes should have probably stayed duplexes and fourplexes. These over time will probably get reconverted and exacerbate the condo overhang.

      The entire strategy has been based on short term thinking. ZIRP and QE promote short-termism. Who in their right mind would lend for 10+ years at 3% especially considering the level of corruption???

      In my mind, the next crisis will be worse than 2009 because today debt-to-GDP is not at 30% anymore and rates can not get cut. In many case, there is no dry powder left. I find it mind boggling that people are still expecting a return to normal when nothing was fixed and even worse, even more debt was tacked on.

      1. NotTimothyGeithner

        The primary reason the next crisis will be worse is because there was no good faith effort to solve problems. There will be no TARP situation. In the last crisis, every race was more or less decided. W’s unpopularity and brashness were recognized and wouldn’t change which allowed for heavy lifting. Obama’s popularity is still high enough that he expects to be hailed as a visionary any second now. At the same time, Democrats are recognizing Obozo is done, and the Southern Democratic successors who represent so much of the GO won’t work with Obozo in public. There isn’t a workable majority for anything public in nature. Pleas for time won’t fly given the s Tate of the economy. Democrats will be nostalgic for Occupy and the Tea bagged town halls when the crisis hits.

  9. psychohistorian

    I think it is time we revisit the definitions of good and bad within the context of finance and mr market.

    Some think a crash would be good and others think it would be bad. Maybe it could and will be both. It could be good if it ends corruption, brings about structural change and bad for the hurt it causes to real people.

    I think this move by the plutocrats is a defensive one to pressure the world into being scared enough to allow them to continue their class system and ongoing rape of the “little people”. Will the cries for help at ANY cost overwhelm the pleas for structural change to our social organization? That is the war that we are about to fight.

    Onward!

  10. Jackrabbit

    If you start from the premise that Obama & Co. believe in TINA and “don’t let a crisis go to waste” and don’t mind cracking a few eggs to make an omelet for the .1%, then you get to a possible answer. (Witness HAMP, Syria last August – a setup that was months in the making, etc.)

    Taking some wind out of economic sails now could help counter building resistance to the trade deals (TPP, etc.). IF in six months people are clamoring for JOBS, the TPP will easily pass in US Congress (as well as foreign capitals that may be resisting US pressure).

    I can almost see a Mr. Burns type rubbing their hands and murmuring: “purrrfect!” No pain, no (tade deal-generated, Obama Presidential Library) gain?

    1. different clue

      Good theory. That’s why we have to start calling “Obamatrade” or some other derogatory Obama-name. “If you like Obamacare, you’ll love Obamatrade.” Make “Obamatrade” the public name of TTP/TTIP.

      1. NotTimothyGeithner

        Biliary will make another go at it, so it’s important bad ideas are tarred as bad ideas and not personality driven. Making it an issue that goes beyond Obama means it will be a load stone for all time. Billary will run on social issues and identity politics with the stink of false nostalgia. It’s important that TOP be seen as awful on its own merits. Billary Inc will push Hillary as a return of the adults and suggest that Obama’s problem was incompetence not hideous policy choices.

        1. different clue

          Evil ideas should certainly be debunked as evil ideas. But I continue to believe that name-smearing TTP/TTIP as Obamatrade will reach and brain-grab more people, some of whom might be induced to ask “what is Obamatrade anyway?” and then study the TTP/TTIP papers in some detail.

          Also, if those agreements can be made the object of widespread rejection and derision under the name Obamatrade with detailed explanations for all who want them, then when Presidents Billary try to push them again, one can deploy phrases like: Oh No! It’s Obamatrade 2.0″ Or “What, Obamatrade again?”

          Words are weapons. Frank Luntz and Newt Gingrich showed us that. Where is George Lakoff’s pile of severed heads?

          But there are enough concerned people out here that some can pursue one approach and some can pursue the other approach, and both approaches can show some separate success. I know whenever I type Obamatrade in a thread I will follow with (TTP/TTIP).

  11. Lune

    I think this is just Yellen trying to prove she’s strong before receding back to business as usual (coddling the banks and the market). Every Fed chief when he / she starts, does something to prove he’s “tough”. Bernanke for example raised interest rates at the beginning of his tenure to prove he was an inflation hawk. Yellen is doing the same. After a great kabuki showing of causing some temporary and largely illusory pain to her banking masters, I suspect Yellen will implement a nice, cushy Yellen put just like her predecessors and resume shovelling money into Wall St.

  12. MaroonBulldog

    Mr. QE Addict is objecting to the QE taper? No surprise here: Mr. Heroin Addict wouuld scream if the physician decided to taper his heroin, too.

    “The reality is the central bank seems belatedly to have come to the recognition that QE was not doing anything for the real economy. In fact, a strong case can be made that is was hurting it, …” Better never than late?

    “the Fed withdrawing QE has the potential to do more damage than whatever the benefits were.” Sure, if the addict’s physiology has become altered to depend on it.

    Iatrogenic complication of an iatrogenic disease.

  13. susan the other

    The interaction between zirp and QE is puzzling. I think zirp is a good long term policy, like Ann Pettifor says, money should be way cheap, there should never be a lack of it for good projects, etc. So then I think giving banksters all that QE credit was never meant to stimulate the economy but only to prevent the banks from collapsing. Zirp also does not stimulate the economy. So then I think, Huh? And can only inform myself by remembering what Stiglitz has been saying, that productivity is the Achilles heel of capitalism. We just don’t need all that crap; and replacing all that disgusting overproduction with over financialization could never do anything to save capitalism anyway. So why QE? It bought some time, to make decisions on how to go forward. And cutting back on QE will allow zirp to continue because it will not be necessary to raise rates to keep the dollar “strong” as they say. But none of this makes sense because we haven’t found a way to change over from a capitalist accounting system to another kind of accounting system based on socialism, environmentalism, and equitable living. We never hear a word from anyone on this subject. Obama offended us all when he pontificated briefly about inequality and then raised the minimum wage to 10 bucks. How disgusting. And how disgusting that he even had the nerve to toss us such a stupid little crumb. So we could all go out and consume more. Gag me. And the extreme nerve to ask this country’s elected representatives to fast track the TPP. The TPP is designed totally to maintain the corporate status quo. All of this confusing stuff would all cohere except for the one big truth and that is that capitalism no longer works in a world which has become technological and efficient. Capitalism only works in a swashbuckling, privateering world. So this insanity doesn’t even buy time.

    1. James Levy

      Except that anyone on fixed income or in retirement is getting killed by ZIRP. It turns everyone into a petty speculator because there is no good return on safe investment or savings. It encourages people to look to the stock market for answers. A national investment bank for long-term infrastructure and research and development should be the way to go if you want to make money available, not ZIRP.

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