Marie Antoinette is reputed to have said Let them Eat Cake
I say Liqudity for everyone...... Viva liquidité
I am proud to live in these exciting times when we have our friendly central bankers who can display the true extent of their ability to monetize everything under the sun.
and I guess word may be getting around about my 10 Trillion dollar contraction in the Credit Default Swaps market. -g-
Maybe the CB's can get far enough ahead of the curve to keep that from happening. These days can the really sharp monetary analysts and theorists even have an type of consensus reality as to what exactly are the Monetary Agregates, in our Global Economy .....what are their growth rates.
12 months from now we can probably say what they were now.
And how do you keep track of the Monetary base, rates of growth---
and then we've got the velocity of the Money supply and Fed Head Ben B's own coined term of the monetary decelerator.
well let's go to the video.... and check in on Jeremy Grantham's latest little missive in the FT.
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Fed needs tough chief in Paul Volcker mould By Jeremy Grantham
Tue Apr 29, 3:50 PM ET
What got us into our financial pickle? Most academics are prisoners of the Efficient Market Hypothesis that assumes man acts rationally and efficiently in economic matters in ways that can be caught in elegant mathematical models. Ben Bernanke, chairman of the Federal Reserve, shares this view completely, and Alan Greenspan, his predecessor, when it suits him. In such a convenient world, there can be no bubbles and no crashes. A related belief is that sensible, disciplined control of money supply will drive away all ills, including the madness of crowds, and, therefore, a sensible central banker is all powerful.
Unfortunately, both concepts are complete illusions. First, we live in a behavioural jungle where markets can crash 23 per cent in a day without any defining event, price/earnings ratios in Japan can rise to 65 times and the value of land under the Emperor's palace really can equal California's. Second, central bankers do not always do the right thing, often because that would involve great career risk. Being slapped by a Senate subcommittee for saying "irrational exuberance" is bad enough. Taking away punch bowls and risking being seen as holding the pin when the bubble pops is even more dangerous stuff. (No doubt about that --ed jp)
The world seems to think the Fed has substantial power to influence the real economy. Its tools, though, are not nearly as effective as believed. It controls short rates that influence banking profits and perhaps a little increase or decrease in debt. But long-term growth depends on education, supply of workers, capital spending, and technology, over none of which the Fed has any control.
Yet the market can go up 5 per cent in a week because of an unanticipated drop of 25 basis points in interest rates. Such power as the Fed has rests on its jawboning and supply of moral hazard.
Both Mr Bernanke and Mr Greenspan have trouble seeing bubbles. When Mr Bernanke describes an 80-year US housing bubble as "merely reflecting a strong US economy", we might wonder about his statisticians or his competence. But, really, it is about belief. He is not looking for bubbles to exist in his theoretical world.
Not believing in bubbles and/or being unwilling to risk unpopularity by moving against them leaves the two Fed bosses with no alternative but to give free rein to speculators on the upside and focus on the downside. But, even on the downside, did they have to be so generous?
It created an extreme form of moral hazard: it allowed risk takers to win too big and too easily; it helped spawn a huge hedge fund industry; and, worse still, it helped turn formerly discreet bankers into speculators. If you even partially bail out Bear Stearns - leveraged at 40 to 1 - next time someone will try 50 to 1.
The Fed must show some backbone. If you always take the friendly way out, no bubbles will ever be pricked and we shall always be reacting to crises in an increasingly speculative world. Paul Volcker, the Fed chairman before Mr Greenspan, had the character to do tough, unpleasant things where necessary. His two successors have not.
Both men were in a position to be powerful naggers in protecting financial standards; to question the quality of new financial instruments, not praise their ingenuity as Mr Greenspan did; and to question and review mortgage quality and off balance sheet financing. None of this nagging was done.
Finally, when shall we stop appointing as Fed chairmen either academic economists - out of touch with the messy real world? - or lightweight commercial economists and find someone with solid banking experience? Would a banker with even a hint of John Pierpont Morgan in him have allowed such a sad deterioration of credit and banking standards? Where was Mr Volcker when we needed him? Fired for doing unpleasant but necessary things. So perhaps we get the Fed we deserve. Let me end with Mr Greenspan's full and contrite repentance: "I have no regrets on any of the Federal Reserve's policies that we initiated back then."
What can you say to that?
Jeremy Grantham is the chairman and chief strategist of fund manager GMO.
--------- small technical note.... it's actually Junius Pierpont Morgan (the Legend) who was born around 1837 and die shortly after the famed CUJO commission inquiry conducted by Congress. Interesting his dad who's middle name was Spenser actually wanted his name taken off the name of the bank with a proscribed period of time after his death. |
