Comments on: Notes From Underground: FOR CHAIRMAN BERNANKE — WHEN DID MONETARY POLICY BECOME THE LABORATORY OF ACADEMIC THEORISTS?

By: yra harris

yra harris — Sun, 16 Sep 2012 18:17:11 +0000

Jason–first of all a very thoughtful post.I didn’t hear the Dalio interview but I have been a long time admirer of the Bridgewater thought process–another example of the power of non-MBA thought process and the whole of political-economic analysis being the backbone of the global-macro world.Yes,I think Germany can leave but it is a very complex world and the costs would have to evaluated.i think Draghi is pushing so hard so fast because he won’t the costs of Germany leaving to rise dramatically.I have written over the last three years that the German exodus is a possibility and if that occurs European politics will become even more interesting as Germany would turn east towards Russia–remember almost 50% of Germany’s energy comes from Russia and former Chancellor Gerhard Schroeder is a major player in Gazprom–we do not hear much from Herr Schroeder so stay tuned.Many think that Germany has no choice but to play the role of Europe’s deep pocket,but I am not so sure the game can go on forever.On the defaltion question which I am apt to accept as Richard Koo’s Balance Sheet Recession–the FED wants to reflate its way out of the debt overhang and post the inflating away the debts –the FED is more comfortable in fighting inflation.At what cost as a society we don’t know but as Friday’s blog stated–its just a laboratory for theroticians to play in –if they are wrong in their assumptions—oh well back to building new models.

By: JasonD

JasonD — Sun, 16 Sep 2012 12:29:37 +0000

Yra,
Did you happen to listen to Ray Dalio’s interview last week with the CFR – http://www.cfr.org/united-states/ceo-speaker-series-conversation-ray-dalio/p29012. He basically talked about his template about how the economy works and what phase both the US and Europe situation is in. First of all, I find Ray’s “template” to be pretty accurate in putting the pieces together as to what is happening on a macro level in any deleveraging cycle, but getting more micro to see where we are in that gets kind of foggy….the reason I bring it up is that Ray (from listening to the interview) seems to stress that (in the Euro zone) Southern Europe has the votes to keep northern Europe to just “print money, monetize the debt, and essentially transfer the wealth from north to south. He then says that he believes there is a more likely outcome that Germany will be leaving the Euro zone (not southern Europe). I remember 4-5 years ago when you spoke in Vegas for a CME thing and you talked about this whole euro zone crisis and you said you’ve talked with the CME to not de-list the D-Mark…Do you think a scenario like this can occur? Also, staying on topic of Dalio’s macro views, he basically sounds supportive of the FEDs action to keep pumping more money into the economy (QE) – but he says we are in the stage of the cycle that “private sector” credit growth (in relation to income growth) is will drive the economy. To me, this seems pretty evident with the steeping of the yield curve and FED action – the FED sees Inflation in terms of Income Growth and Asset prices which has a great influence on private sector credit growth…I can only get credit in relation to the assets I own (house) or my income level – if both of these things are in deflation my credit growth will also be. The amount of credit I can receive and spend on GDP really makes no differences on what the prices of commodities are (the higher a commodity price goes, the more farmers will come to the table willing to sell/hedge that price in, with no buy order under the market…thus pushing prices back down…when I was in the corn pits, my boss would say, “with commodities, the only way to get prices down is to push them up and find some sellers”)…it seems like this is what Ben has been thinking…Inflation expectation are simply income growth and financial assets which in turn produce credit for the average man to spend and add to GDP.

By: Adrian

Adrian — Sat, 15 Sep 2012 04:21:23 +0000

Hello Yra,

Really like your blog and it’s attention to deep-thinking analysis.

Btw Bernanke implies that there is no need to worry about a surge in inflation with all this QE because the labour market is so weak there will be no demands for increased wages. But I can’t believe that he’s so ignorant of the possibility that all the QE will devalue the US dollar and thus increase inflation through much higher costs for imported goods.

See ya mate

By: yra harris

yra harris — Fri, 14 Sep 2012 18:26:14 +0000

Greg–thanks for the acknowledgment and they asked me ahead of time and was glad to have another outlet .Hope many are reading and learning

By: Greg

Greg — Fri, 14 Sep 2012 17:24:48 +0000

FYI Yra: someone has been re-posting your blog posts in their entirety on Wall Street Oasis.

http://www.wallstreetoasis.com/blog/for-chairman-bernanke-when-did-monetary-policy-become-the-laboratory-of-academic-theorists

Thanks again for your thoughts.
-GB

By: rohrintl

rohrintl — Fri, 14 Sep 2012 15:09:41 +0000

While the lack of inflation means that Bernanke cannot be characterized as a G. William Miller doppleganger, doesn’t his overt acquiesence to what Sen. Schumer demanded at the last round of testimony make this passingly like the late phase of the Arthur Burns regime? The previously effective Fed Chairman caved in to requests for a monetary expansion in the belief it would help him get re-appointed, and the weak economy meant he could get away with it and all the trouble came later (i.e. under Miller.)

And absolutely agree with your opinion on the future of bond trading: we are likely headed back to a much more volatile phase, and all the guys who came up during the ‘golden age’ that seems to be lapsing are going to need to learn how to be ‘happy bears’… I am personally looking forward to getting back to a late 1970′s style bond market. It was so easing and massively profitable to be a bear back then…

…ahhhh the Good Old Days!! …when trading bonds was an easy transition from trading Bellies. After all, they’re both half a pound of fat.
-AR

By: kevinwaspi

kevinwaspi — Fri, 14 Sep 2012 14:39:43 +0000

Yra,
Accepted with gratitute and humility!
Kevin

By: yra

yra — Fri, 14 Sep 2012 13:35:40 +0000

Professor Waspi—I am offering a full tenured position at the University of hard knox

By: kevinwaspi

kevinwaspi — Fri, 14 Sep 2012 13:26:39 +0000

“WHEN DID MONETARY POLICY BECOME THE LABORATORY OF ACADEMIC THEORISTS?” Excellent question! It fits right in there with “When did industry czars become necessary in capitalism?” The mutation of the U.S. economy is running its course; we are becoming the world’s largest third-world nation where “command and control” is the tool of monarchs and dictators. Equity markets are stalls for “investors” to be milked by algos on every trade, courtesy of co-location and purchased order flow. “Exchanges” are now publicly owned institutions making more money selling inside information than in clearing trades. Bond markets are the central planning committee’s mechanism for rationing opportunity, and fiscal policy has become the social means to redistribute wealth. Is it any wonder we “worship” the false god of academic brilliance?

Historically, academicians have served the useful purpose of finding evidence to support or refute hypothesis that attempt to explain observations in nature. Occasionally, these lead to lovely, powerful and productive discovery:
Boyle’s Law, Ohm’s Law, and may others in the physical sciences. Academic hubris tries to transplant this practice into the social sciences and usually fails miserably with its theories. The term “physics envy” explains our ignorance in acting as if there were Laws of Science governing our study of economics and formulation of policy. Ben and his comrades are brilliant scholars. They may want to pay homage to another among them by taking their advice, but they should confine their work to the academic journals. These venues, unlike the rough world of human interaction, are much better places to begin with “Imagine a perfect world: Now let’s design an explanation and write an equation to fit it”

By: Mario

Mario — Fri, 14 Sep 2012 13:25:53 +0000

The fed;s monetary policies yesterday created such a skew like I have never seen before in the 10 yr T bill to the MBS’s derivatives market. At one point catching the spread well above 24/32. All the previous releases of monetary policies hurts the MBS market, however, yesterday nobody is looking at the inflationary aspect of decision. Today is no different as the 10 year widens away from the derivative market….Is anything positive going to come from this? The iceberg has not even been spotted for what inflation can really do at this point from policis, oil at $4 plus and commodities that have not hit the American pockets….Inflation stagflation who cares at this point it seems like?