Notes From Underground: Be Very Afraid Of Jerome Powell and His Printing Press

Over the past 15 months, I have made light of Fed Governor Jerome (Jay) Powell because of his answer to a question I had asked him at a symposium presented by the Chicago Global Initiative. I asked Governor Powell, “Who guarantees the balance sheet of the ECB?” Without hesitating, Powell said, “THEY HAVE A PRINTING PRESS.” If this is his answer to issues of debt overhang I will be closely watching the precious metals if Powell actually became Fed Chairman. Janet Yellen has proven far more competent than Jerome Powell would be under any top of stressful central bank situation.

In my mind Powell would prove to be a new G. William Miller: A weak Fed Chair that was inept in a crisis situation. The current global financial situation is too fraught with danger for Powell’s PRINTING PRESS. I know this is theoretical but having bashed Gary Cohn I feel Powell is another one of Wall Street’s marionettes. Maybe the strings attached to him are his greatest asset, but not for me.

***There was an excellent article by Mark Weisbrot of the Center For Economic and Policy Research titled, “If You Want Puerto Rico to Recover, Cancel Its Debt.” Now CEPR is considered a left-oriented think tank but in the spirit of Deng Xiaoping, I don’t care if the economic research is left or right as long as it provides insight into global financial conditions. Mark’s partner at CEPR,Dean Baker ,did some of the best work on housing providing the financial conditions that led to the Great Financial Crisis, well ahead of the FED and its regulated big banks. Intelligence is blind to partisanship.

Mark makes the case that so many of Puerto Rico’s problems from the poor infrastructure that has been neglected because of the austerity imposed by Puerto Rican bondholders. I am a capitalist who upholds the rule of law and respect the rights of creditors, but the global situation depends on debt relief when debtors are being crushed by loan service costs. Creditors know well there are RISKS to when earning extra high rates. Puerto Rico is similar to Greece as its creditors have demanded even more AUSTERITY in order to meet it debt servicing costs. While there is much to do to rebuild Puerto Rico the financial responsibility should be shared by the BONDHOLDERS through a massive restructuring before the U.S. taxpayer shoulders the burden.

This is the template for all heavily indebted nations. Austerity is necessary but it cannot be the only route to a Puerto Rican renaissance. As Weisbrot said: “If Puerto Rico is to have a future, it will need a whole new economic plan that allows it to recover. This would include, at a minimum, the cancellation of most of its debt, which is not going to be paid in any case. The austerity that has been imposed as a response to this debt burden needs to be replaced by a fiscal stimulus program, much of which could go toward reconstruction.”

***There was a major article in the Nikkei Asian Review titled, “China Sees New World Order With Oil Benchmark Backed By Gold.” The article begins: “China is expected shortly to launch a crude oil futures contract priced in yuan and convertible into gold in what analysts say could be a game-changer for the industry.”

This has the POTENTIAL to be a great disruptor because China is the world’s largest oil importer. This can have major consequences for the entire global macro world for many reasons. First, the DOLLAR will have an alternative for its status as the benchmark for global commodities. Second, the ability for countries laboring under the threat of U.S. sanctions that are imposed through the SWIFT transfer system can not be avoided by receiving payment in YUAN while being guaranteed by gold. Third, China recently initiated a GOLD CONTRACT settled in YUAN so large OIL EXPORTERS will have the ability to hedge their revenues in a liquid contract further undermining the power of U.S. exterritoriality and quickening the demise of Pax Americana. Fourth, China’s ability to MONETIZE GOLD is a direct assault on the United States’ ability to manipulate the global financial system to its advantage, a remnant of the Bretton Woods Post-World War II global system. The monetization of GOLD really has piqued my interest. It certainly sheds light on the theory that China has been accumulating GOLD. Now, let’s see if they are bi-metalists that can bring SILVER into the equation. XI, what say you?

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21 Responses to “Notes From Underground: Be Very Afraid Of Jerome Powell and His Printing Press”

  1. Angelo Gallo Says:

    Jerome Powell is a lawyer. I get the feeling Trump doesn’t have a taste for lawyers.

  2. Robert Zimmerman Says:

    The amount of gold reserves China and Russia have been buying has been extreme. I was wondering what they were up to. It makes complete sense to me now Yra.

  3. Asherz Says:

    Yra- Jerome Powell’s “They have a printing press” is in total consonance with Draghi’s three famous words five years ago, “Whatever it Takes”. Or to paraphrase Hillary Clinton, what Draghi meant is, “It takes a printing press”. I think you are giving too much credit to Yellin’s competence compared to Powell. She is on the same page as the BOJ, ECB and SNB who are doing the work for her for now. So debasing the fiat currency is fine in solving the world’s debt problem. Think back 1500 years and the Roman Empire’s debasement of the denarius.

    Yesterday President Trump in Puerto Rico in an interview with Fox News, commenting on the $72 billion of the island’s debt, said that debt would have to be wiped out,

    “They owe a lot of money to your friends on Wall Street and we’re going to have to wipe that out. You’re going to say goodbye to that, I don’t know if it’s Goldman Sachs but whoever it is you can wave goodbye to that,”
    So on the one hand you have the printing press, and on the other hand you have the threat of bondholders getting the short end of the stick. Chrysler bondholders know what that means. If bond indentures begin to lose their meaning, and with the pricing mechanism in our markets subject to interventions, where do you think the bubbles in the stock and bond markets will end up?

    That is why your conclusion of the monetization of gold by China becoming the game changer is right on. The great danger to the US and the markets is not Kim Jong-um or China’s military buildup. It is the vulnerability of the debt heavy financial markets to unprecedented disruptions such as having an alternative to the dollar’s monopoly as the reserve currency. Meanwhile, new highs in the S&P and the Italian 10 year at a 2.16 yield. As the Bard almost said, ” If music be the food of markets, play on”. (With apologies to Chuck Prince.)

    • David Richards (@djwrichards) Says:

      Very insightful. Is that proposed debt jubilee in PR a policy trial balloon? As many have said, Trump is a good fit as US president because he is a master at defaulting on debt.

      The investment ramifications for this are clear. Sovereign defaults approach and they’ll be the catalyst for the next massive financial dislocation and crisis.

      Who the heck wants to be Fed Chair with that storm on the event horizon? Cue Powell…lol… IMHO the 21st century will indeed belong to Asia and I should invest accordingly.

      Also, with that coming bond rout and a return to positive correlation between bonds & stocks, the popular risk parity strategies should blow up and the average investor, piled into “safe” bonds, could rapidly lose half their life savings again.

      • Yra Says:

        David Richars in summation to your very solid post —I offer up a book I have to believe you have read—Giovanni Arrighi’s –The Long Twentieth Century

    • David Richards (@djwrichards) Says:

      “If bond indentures begin to lose their meaning, and with the pricing mechanism in our markets subject to interventions, where do you think the bubbles in the stock and bond markets will end up?”

      So, central banks also at risk of default in the coming dislocation.
      Again, risk parity?…lol

  4. Rob Syp Says:

    Jeff Gundlach said yesterday Neel Kaskari will be next Fed Chief “he’s an easy money guy” guess the band will and does play on.

    Is the Catalonia decision another sign of “All in all you’re just another brick in the wall”

    • Yra Says:

      Rob Syp–saw this story late last night .It is a possibility as he is not on any list and he seems to have a benefactor that has paved the way for him—think Tim Geithner—as he went from under-secretary of treasury,to run for California Governor, to President of Minneapolis Fed—hmmmmmmm—quite a paper trail—all yes with a stop at Pimco

  5. Financial Repression Authority Says:

    […] LINK HERE to the article […]

  6. Yra Harris: Does A Printing Press “Guarantee” The Balance Sheet Of A Central Bank? - Investing Matters Says:

    […] LINK HERE to the article […]

  7. The Bigman Says:

    Yra I saw mention of John Taylor as a dark house candidate for fed chair and I thought it a great idea- What say you? or are things too FUBAR for a rules based Fed?

  8. Chicken Says:

    I’ve always been under the impression that China buys UST’s for the purpose of bolstering $US.

    This has enabled a host of bad habits, no small one being the MIC.

    Wall Street always seems to position themselves before events occur, most likely b/c they have insider connections (ie: Who do the FED, DC, etc. actually work for?)

  9. Trader 1 Says:

    Yra,

    With the current GDP in USA and stimulus coming at us from all the hurricanes, what do U think 10’s and 30’s would be yielding if all the CB distortions were out of the market?

    • yra harris Says:

      Trader—nobody has any real idea regardless of what the models say—too many variables but that is why I keep stressing the yield curves as being directive

  10. Arthur Says:

    Investors may rue the day the macro strategy died? Being a contrarian and Keynes’ “The long run is a misleading guide to current affairs. In the long run we are all dead.”

    https://www.bloomberg.com/news/articles/2017-09-19/hugh-hendry-s-hedge-fund-murder-raises-risks-for-others

    • Yra Says:

      Arthur–this funds are so big that every trade becomes a commitment–smaller funds have a flexibility to treat the current landscape as tradeable but not investable—there are times when size is a negative

    • David Richards (@djwrichards) Says:

      Maybe Hugh Hendry should have waited a few more months before deciding to shut down his fund. Why? See font cover of tomorrow’s Economist, “The Bull Market in Everything” with the big bold bull. Nothing like it since their infamous “Mighty Dollar” cover in December, published just ticks below the DXY top tick.

      • Arthur Says:

        The Economist is an amazing gymnasium for the mind. I ignore daily news and read The Economist & Yra instead. I don’t agree with them (80%). So I love it.

        “To source my stories, I read a tremendous amount of books and papers, I subscribe to research services, and I read The Economist religiously.”

        Jim Leitner
        Founder of Falcon Management

        “Invert, always invert”
        Charlie Munger

  11. David Richards (@djwrichards) Says:

    Oh dear, reported on Wednesday that Powell is likely Trump’s choice?

    And the dollar tumbled yet again for the 5th day with a big drop. I now see it closed the day convincingly below a critical support level.

    This portends new lows ahead for the dollar. I reassert my Euro target to 1.28+, but now possibly as soon as 1Q18.

    That will end the first big leg down, then a recovery. But ultimately, the dollar could be on track for all-time historic lows IMHO. Certainly if Powell is like Miller and the dollar crashes as badly as it did back then (along with all US asset classes in the end, except commodities…. so there’s your ticket – high inflation ahead!)

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