The Monday 05 JUN Speech by Bernanke, the one that came
late in the day and rocked the markets hard, is worth examination. Structurally, with the first 2/3s devoted to a Slowdown theme, it's possible the writer and Bernanke felt this would nicely prepare the markets for a pause somewhere down the road and a victory lap speech to go with it. The later 1/3 of the speech is the hawkish part of the text, again which the writer and Bernanke may have percieved preserved more hikes for the FED. So on a weighted-basis, Bernanke may have thought he was balancing the dual mandate of the FED to maintain both growth, and price stability in the text. But where the writing in the final 1/3 trumps the weighting, I think, was Bernanke's contention the FED would keep hiking into the teeth of a slowdown. Bernanke should have realized something about that one, key idea: markets have not heard anytyhing like it in 18 years. To the extent any long tenure defines the institution, the Greenspan era was a protect growth era. Greenspan never said anything like that. It was a shocker, I think.
So that was mistake on Bernanke's part, if--and I mean if--he did not understand he was stepping over a threshold.
Meanwhile, another curious phenomenon has developed with this FED, which is that in the midst of what looks like an experiment to put the onus back on the markets to decide the course of monetary policy--through a new style called "clarity"--the FED has wound up drawing a ridiculous amount of attention to itself. I think this is a basic mistake of understanding about the nature of Institutions, and what people expect. People expect that if an institution exists, it must have a function. And if it has a Chairman, then the Chairman must lead. Bernanke is trying some weird approach here where he is saying "no let's all just wait and see and muse, and mull, and decide together." That would be nice. But it's not how societies work. This really looks like an idealistic vision from an academic.
Then we throw into the mix that Bernanke has come straight over from the White House, so one really has to assume he has signed on to a pretense of fighting inflation, while protecing the govt's ability to keep borrowing.
Worst of all, they want a slowly deflating dollar, with moderately firm bond prices--and they don't want to give one inch on deficit spending. These guys want like 10 cakes at once, and to eat them all to boot.
It's not gonna work. And that is why what you call the Riskloves serve, imo, the Good Guy function. I make no claims about whether they are good guys--but--they serve the function to unmask this charade of fighting inflation while saying nothing, proposing nothing about the spending.
Central Banks go through several levels of Hell. One level is when they tip their hand about what they are worried about. When that cat gets out of the bag, they've got real problems. So all this advertising about "being worried about Inflation" is not what they are worried about. I think we're in agreement they're what worried about is a dollar down/bonds down dynamic that gets out of hand. But--but--they farking refuse to cure that problem the real way--getting spending under control.
I remember during the Asian Financial crisis, when the AUD and NZD were tanking, and both CBs put up interest rates to defend the dollars. And then you'd get these days when the AUD and NZD were doing OK, but then the CB's would come in and buy them. Well, that was a green light to sell the crap out of them after the buying was done. Those days usually closed as really, really bad days for the AUD and NZD.
So Russ, this silly, preposterous game the FED is playing here to support bonds and the dollar *without earning it the old fashioned way* is gonna run into serious trouble when the markets get wise.
When things turn, I hope every risklove in the gold market, and forex market, jams these fraudulent and juvenille FED plans sky high up their poopers.
JMHO!
Best, LP |
