First, why was Janet Yellen summoned to the White House to meet with President Obama and Vice President Biden? The most ostensible reason is PROBABLY to get the Fed’s view on the economic impact of Trump and Bernie Sanders. Is the anger in the land a result of stagnant wages and is there any policy impact the White House could pursue without distorting the economy? Is fiscal stimulus a possible positive response and would the Fed be receptive without immediately raising rates? There are no certain answers to why Yellen went only conjecture. But one thing that caught my attention was the headline in today’s Financial Times: “Lew Urges IMF to Get Tough on Exchange Rate Manipulators.”
The article said: “The comments amount to a call for the IMF to be less diplomatic with its members and more active in naming those who engage in currency manipulation to gain trade advantages and other dubious economic policies.” Lew was adamant that the IMF had to “… intensify scrutiny of critical issues like exchange rates, current account imbalances and shortfalls in global aggregate demand.” The DOLLAR, of course, is the responsibility of the Treasury and not the FED but if the U.S. president was going to be more assertive about the need for correcting imbalances, Obama may have wanted to discuss the ramifications of any potential fallout from an aggressive position towards Germany and China–the two major sources of global imbalances–with Chair Yellen.
The Japanese have already seen a 6% appreciation in the YEN since the G-20 meeting of Finance Ministers and Central Bankers in Shanghai at the end of February. The threat of the rise of Trump and Sanders may be worrying the White House regarding the success of the Trans Pacific Partnership (TPP) and they may be willing to muscle the G-20 to put up a strong front in an effort to save the major trade deal.This is something to watch as the G-20 meets in Washington, D.C. this week.
The second piece of nothing to hide is: Who kidnapped Jens Weidmann? The bombastic ECB board member and Bundesbank president was Ghandian in his approach today as he openly criticized German politicians for their attack on the ECB. Mr. Weidmann was defending President Draghi and the ECB, citing its independence as a key to its effectiveness. This is not the same Jens Weidmann who has used Mario Draghi as a punching bag in his effort to undermine TLTRO and QE. It is Jens Weidmann who laid out the economic rationale for the birth of the AfD and its economic protagonists who challenged Draghi in the German Constitutional Court.
In all fairness Weidmann was back on the attack in regards to the concept of “money rains.” “Some academics might find this instrument a thrilling possibility, but it should not be part of the policy debate.” He summed up his argument in the FT article by claiming that ‘money rains’ acted to “… blur the boundaries between monetary and fiscal policy.” The Bundesbank may have softened its stance on QE but has now moved the battle lines to so-called helicopter drops. But seriously, if Merkel has nothing to hide what black-op group is hiding Jens Weidmann?
***HOMEWORK: Read the Ambrose Evans-Pritchard piece in the Telegraph about Olivier Blanchard. We will discuss.