Notes From Underground: Is It George Bailey or Henry Potter?

Bank of England Governor Andrew Bailey made a ridiculous comment almost two weeks ago and I’d be remiss not to mention it. Bailey issued his own FORWARD GUIDANCE on how to slow the pace of inflation. He suggested that people refrain from seeking big pay raises. It’s astounding that a sitting member of the G-7 Finance Group has the temerity to restrain the AVERAGE WORKER while promoting QE policies that have stoked a serious rise in asset prices for those who own antique autos, stocks, precious metals, art, multiple homes and any other asset class on the planet.

Mind you, at the last BOE meeting the Board decided to boost rates by 25 basis points in an effort to curb inflation, but failed to begin shrinking its balance sheet, which would lessen the liquidity needed to sustain the heavily leveraged based asset bubbles. More notably, the BOE vote to raise rates was 5-4 with Bailey voting with the majority. The four NOs were all in favor of raising rates by 50 basis points, which would have been a market surprise. Governor Bailey, haven’t you already harmed the U.K. middle-class enough with lower for longer and a BLOATED BALANCE SHEET?

This is a perfect example at how central banks are in grave danger of losing their CREDIBILITY. Asking the middle class wage earner to be BURDENED WITH MORE PAIN is certainly representative of Henry Potter. Governor, you sir, are no George Bailey.

Speaking of central bank incompetence, Robert Armstrong had a piece in the Financial Times titled, “What the Fed Might Think About QT and Is the Bond Market Just Stupid?” In it, he cited former Fed researcher Claudia Sahm, who asserted that the Fed is “very uncomfortable with the balance sheet … they don’t know why it works or how it works. They don’t have enough data points on this working well. They can’t talk about that much in public because they don’t want to unsettle markets or themselves.”


On Wednesday, the EQUITY markets and other assets rallied strongly after the release of the FOMC MINUTES as there was very little to support the hawkish stance of Atlanta President Rafael Bostic and his suggestion to begin Quantitative Tightening with a $100 billion a month drawdown. We at NOTES FROM UNDERGROUND have maintained a bullish outlook for precious metals, commodities and other assets as long as the FED was slowly raising rates. (Slow, meaning sustaining a steep NEGATIVE REAL SHORT-TERM YIELD without shrinking the balance sheet in any aggressive manner.)

As noted in the latest podcast with Dr. Faber, QT would be the area in which the FED WOULD DISCOVER HOW MUCH LEVERAGED EXISTED ACROSS MYRIAD ASSETS RAISING THE IDEA OF SYSTEMIC RISK AS THE OVERLEVERAGED BEGAN RAISING CASH. The FED has created a very difficult situation for itself as it confronts the global problem of inflation.

There is no fear of raising rates for the FED will go slow as Paul Volcker has left the stage and the structure of U.S and European debt is far too fragile to sustain a REAL OVERNIGHT BANK YIELD THAT IS POSITIVE. Old Man Potter can be found on Threadneedle Street but Jerome Powell prides himself on concern for “those who have been financially harmed through no fault of their own” so what would George Bailey Do?

More importantly, the White House is pressuring the FED to gain control over headline inflation before the midterm elections, so what policies can the central bank deploy to slay the rampant price increases? Watch for WAGE and PRICE CONTROLS BY JUNE. It’s always about the optics when George Bailey confronts Henry Potter.

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22 Responses to “Notes From Underground: Is It George Bailey or Henry Potter?”

  1. Srjean Says:

    Hi Yra, I very much enjoyed your podcast with Dr. Faber. I think your call on Gazprom Holding co.’s (there are a few) is on point and i know of (near) insiders who are building up a position there. I am as flabbergasted as you are about Sahm’s statements, no idea how they are going to paint themselves out of this hole, but I do disagree about wage controls –> it is a very unDemocratic thing to do for a very Democratic president and a beholden Fed Chair. What do you think?

    • Yra Says:

      Srjean—your point on Wages is correct and i grappled with that especially after I read the James Galbraith Project Syndicate piece a few weeks ago when he takes the FED to task for trying to contain wages.But I believe this Biden WH cares only about the optics of having to do something in an effort to crush headline inflation for the White House operatives have been convinced since the recent November elections that it is inflation hurting their polls.Right after the election what did the President do—go into the strategic petroleum reserve in an effort to get oil prices down–I blogged about it as mere political theatrics and would only result in lower prices for a few days and then the large oil refiners would make windfall profits.I stated this on Joan Esposito’s radio show that it was a failed policy and proved right as it dispelled the narrative the WH and other democrats were trying to create—-waiting to be invited back—but your point is well taken but if Dems are struggling in the early election polls there will be a cry to yet again DO SOMETING

  2. Mark Garber Says:

    Where is that angel Clarence to guide the central banks.

  3. kevinwaspi Says:

    Membership in the central banker circle used to require belonging to the right men’s club. That’s way to sexist today. Now the requirement is having a frontal lobotomy. Bailey is no Henry Potter, he’s Uncle Billy, the fumbling fool who who louses everything up by his losing the deposit money.

  4. t Says:

    How rich from BOE’s Bailey. Who makes $780,000/ yr…18 times the national median. If the 10yr yield is historically 2% above the inflation rate…and we generously assume a 3% inflation that is a 5% 10yr. If we take a “half Taylor rule” we get a 4.7% fed funds rate. Business’s I know well in the real estate, maintenance, landfill, aviation, barge etc worlds are all having surprising price and wage increases. My daughter is trying to buy a house and 20 people are at the showings. Something tells me Yellen’s 2% inflation call by the end year will be “just a bit outside” to quote Bob Uecker. This may all translate to a (bad) Iran deal in a vain attempt to keep oil lower, a continued housing boom as a weak fed stays behind the curve, better times for Brazil and and Buffett’s bet on Japanese trading house’s continuing to shine.

    • Yra Says:

      t—-wonderful analysis and I think you cover it very well on all counts—thanks for the input as NOTES continues as our Wonderful Life in the fact that every day is another chance to learn from such a great chorus of readers

  5. Asherz Says:

    Yra, thank you for bringing in these little news pieces. I would never know about George Bailey without you.
    Bailey is cut from the same cloth as Bernanke, Lagarde, Kuroda, etc. They were the attendees at Davos in Januarys before Covid. They are intellectual midgets. They should stop waiting for datapoints and use common sense. When you print trillions and not increase widgets the price of widgets goes up.
    2 + 2+=5.

    • Yra Says:

      Asherz—nobody sings like you in explaining the malfeasance of central bankers for so many years.I advise all to prepare for understanding what these model builders and aggregators of data fail to find—CONTEXT and NUANCE.Find the FED RESEARCH PIECE CITED IN ARMSTRON’S ARTICLE—-“Issues in the USE of the Balance Sheet Tool”

  6. Mike Temple Says:

    If Biden imposes wage and price controls, USD should nosedive
    If we see true loss of confidence in Fed, expect to see actual mobs outside the Eccles Bldg.

    Meanwhile, Zoltan out with a piece imploring Powell to channel his inner Volcker and crush assets!

    And in Europe, who will buy the PIIG debt?
    Germany just issued 10 yr bunds at 32 bp…highest yield in 3+ years.

    If you ask me, all roads lead to gold

  7. kevinwaspi Says:

    Fed Brilliance Indicator Update:
    As per Grant’s, “The Federal Reserve added another $21 billion to its cache of interest-bearing assets last week, bringing Reserve Bank Credit to a fresh record high of $8.858 trillion. That’s up 20% year-over-year and 114% from early 2020.”
    That is all, move along now, nothing to see here…..

  8. Arthur Says:

    Davos with Guns. Munich Security Conference

  9. deltatrader 1 Says:


    How do you think the Russia/Ukraine situation will be resolved – What is Putin trying to extract from the situation to declare victory??

    • Yra Says:

      Delta—I have no idea but what I thought at the beginning—he wants a treaty guarantee of no NATO expansion—Nyet menas NYET as William Burns wrote in 2008—interesting that we do not hear from the present CIA director

  10. Chicken Says:

    They no longer feel it’s necessary to hide their disdain for plebs, they now say the quiet parts out loud.

  11. Arthur Says:

    University of Chicago.

    I am a realist, which means that I believe that the great powers dominate the international system and they constantly engage in security competition with each other, which sometimes leads to war.

  12. Trader 1 Says:


    The world is responding to Russia with economic warfare — How do you think China is viewing this worldwide economic response in making any potential move on Taiwan??

    • Yra Says:

      Trader —I have no idea –i would have to be an idiot pundit on any one of the cable channels to venture into that arenaThe Chinese have had the ability and “desire” for the last thirty years or more —why now?

    • Chicken Says:

      Perhaps China is considering sanctioning the US, in connection with Taiwan. Imagine a trade embargo levied against the US by the world’s manufacturer.

  13. Arthur Says:

    Today, Marc Faber

  14. pgrommit Says:

    Another fascinating look into what’s always and everywhere most important to the world’s elites. While Putin was threatening the nuclear option in Ukraine, and Europe was putting together a sanctions package against Russia, Mario Draghi (now PM of Italy) was making sure there was a “carve-out” for Gucci products from those sanctions.

    Some really “classy” human beings running the world these days.

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