On Jan. 30, I had the pleasure of sitting in with Bill Laggner and Richard Bonugli for another Financial Repression Authority podcast. These discussions provide a forum to discuss pertinent issues regarding the efforts of policy makers that impact the creation of wealth, as well as its distribution. I refer to this as POLITICAL ECONOMY. The podcast was recorded four hours before the release of the FOMC statement and Chairman Jerome Powell’s press conference. The FED chairman provided further insight into the walk-back of “automatic pilot” as he addressed concerns about the headwinds building in the global economy.
Also, the FOMC released a separate statement about its efforts to shrink its balance sheet. It seems that the central bank has decided that its balance sheet will remain larger than it had initially anticipated. The “double barrel” approach to tightening may be far more impactful than merely watching paint dry. Chairman Powell deserves kudos for admitting that there is little CERTAINTY about the effects of the balance sheet unwind proving the case that the QE programs were not supported by ROCKET SCIENCE (as so many pundits proclaimed). As I have maintained, it was a massive wager to make based on the assumptions of flawed models. The FED also seems to be adopting the narrative of slowing global growth as Powell placed this issue as a greater concern than the U.S. government shutdown. The FOMC is beginning to sound similar to the Draghi ECB. Enjoy the PODCAST.
Tags: balance sheet, Federal Reserve, Financial Repression Authority, FOMC, Jerome Powell, rocket science
February 5, 2019 at 5:47 am |
Hi Yra……are you familiar with MMT? I’ve been hearing this mentioned in my reading lately and wondered if you believe the Fed is moving in this direction.
February 5, 2019 at 6:05 am |
Housman—it is a very good question.Yes,I have read much about the growing question /concern about MMT and will try to put together a blog that will provide a sense of what this means for our investing/trading opportunities as we head deeper into the year and thus political season—Modern Monetary Theory it is indeed.In fact,the FED has not really opined on this but there was the piece from the San Francisco Fed that the WSJ wrote about last night on Negative Interest rates by Vasco Curdia which is causing a stir—but your question remains and it will be answered
February 5, 2019 at 1:16 pm |
SOBERING…. if we think it’s bad now just wait 20 years like the guys arguing over the last bar stool on the Titanic….
https://www.cnbc.com/video/2019/02/05/reform-entitlement-programs-to-cut-deficit-says-expert.html
February 5, 2019 at 7:36 pm |
Good point re: Reforming entitlement, keep supersizing of the military budget money pump on track and out of focus.
February 6, 2019 at 8:10 am |
MMT is basically the implying that since the financial experiment of the past 10 years has worked (hasn’t imploded) thus far, we can continue doing this in perpetuity. Once you realize you aren’t going to be able to bring your spaceship back from the moon, rather than admitting you failed, you can just propose to live on the moon for ever. Our leaders need to decide what the lesser of the two evils are. They usually choose the one that feels better in the short run.
February 6, 2019 at 11:15 am |
Trader B—good point indeed and I love the use of the moon return flight as you certainly understand it ain’t rocket science–now about that new paper from the SAN FRan Fed promoting negative interest rates
February 6, 2019 at 7:29 pm |
So, with negative interest rates coming our way, buying the 30 yr with 3% yield is starting to look like a good idea. 😀