So Jamie Dimon is being considered for Secretary of Treasury as the theme of Wall Street Insiders being the only “Stuarts” of the financial system remains on the front burner. What is interesting is that the rumors persist even as JPMORGAN is fined more than $280 million for providing jobs for the offspring of the Chinese elites in order to secure an inside track to the China power center. Hey, why not put Dimon in charge of the Treasury? That way he can hire the New York elite’s Ivy League kids for internships and other such jobs. It would really secure the fidelity to JPMorgan wealth management teams even more than being a bank recognized as too big to fail. Again, the most competent person to be the Secretary of Treasury is Sheila Bair for her wisdom, regulatory experience and strength in combating the Wall Street “wizard,” Tim Geithner. Jamie Dimon for Treasury ought to be a non-starter and he would be crazy to take the job for the intense scrutiny he would undergo. Enough of this rumor. Let’s get back to the Fed.
Today, Chair Yellen testified before the Congressional Joint Economic Committee. Senators and Representatives had the chance to bury or praise Yellen as most of the inquisitors read questions prepared by their favorite think tank. There were no political bombs were tossed because if you hadn’t heard, this election cycle is over. I want to remind readers that Janet Yellen is a labor economist and as I have written for four years, she will err on the side of “running hotter longer” if it means WAGES are rising and garnering a greater share of corporate profits. To reiterate the point, Chair Yellen did answer a Democratic Senator’s question about low wage growth in these words: “More recently, we’ve seen an increase in the share of the pie going to capital, and that’s consistent with wages not keeping with up productivity. We’re not certain what the cause of that is.”
The answer to at was all the rage in Thomas Piketty’s book published in 2013, Capital in the Twenty-First Century, where Piketty researched the growing inequality in wealth on a global scale. The summary was R>G, which implied that as long as the rate of return was greater than growth capitalists would be garnering a greater share of the economic pie. So wages running at a higher rate of return than profits would result in rages rising at the expense of capital. Why would Yellen want to impinge on the wage rises that have been stagnant for the last 25 years? Yellen is evidently not alone as the entire FED Board of Governors has voted en-block to keep rates steady even as some regional presidents have cast dissenting votes to current Fed policy. It is interesting that those within the Washington Beltway have voted to hold rates while the Fed Presidents from the hinterland have been pushing for rate increases.
Anyway, global headwinds to growth are building as political uncertainty is causing a rise in the DOLLAR, putting pressure on the balance sheets of many emerging market corporations and countries that have DOLLAR-denominated debt. Lael Brainard will be sure to argue at the December meeting that the dollar strength is acting as a headwind to U.S. growth. The Mexican peso has been the repository of emerging market angst as the peso has declined more than 10% since the night of the U.S. election. Today the Mexican Central Bank raised interest rates by 0.5% to 5.25% from 4.75% in an effort to bolster the besieged currency and at the close the peso has actually weakened. The Yellen Fed will certainly be cognizant of the dangers of an appreciating currency.
The Bernanke Fed unleashed a torrent of cheap money on the world, which resulted in cheap loans to global concerns. The negative side of the Fed’s QE program is just beginning to reverberate around the globe and that is may well give the Fed reason to pause.