Posts Tagged ‘Paul Volcker’

Notes From Underground: The Story of Two Doctrines

January 5, 2023

Happy New Year! We’re starting 2023 with a podcast I recorded with Richard Bonugli and Marc Faber. We didn’t make any forecasts (in traditional CNBC fashion), but just discussed potential outcomes in the macro global financial situation.

Critical to the discussion was what I am calling the two doctrines: Paul Volcker and Ben Bernanke. The Volcker Doctrine is based on wringing inflation out of the economy when it begins to boil, while the Bernanke Doctrine is focused on preventing deflation from gaining a foothold. In the last five decades the US and Europe have not experienced DEFLATION as the central banks and fiscal authorities have PREEMPTED the onset of such an outcome. In DEBT-PLAGUED economies DEFLATION is the worst potential outcome. Remember, Volcker confronted a 39% DEBT-TO-GDP ratio while today Jerome Powell confronts a 106% ratio and even much greater private/corporate debt. Enjoy the PODCAST with a strong libation or sugar-free drink for too much stimulant will not be advised.

Click here to listen to the podcast.

Notes From Underground: Could Paul Volcker Find His Inner Volcker In This Environment?

May 22, 2022

Since the Zoltan Pozsar challenged Federal Reserve Chair Jerome Powell to find his inner Paul Volcker and raise interest rates high enough to bring the inflation expectations to heel. (He argued draining liquidity and raising rates to a NEUTRAL level OUGHT to be the medicine needed to truly render the current high inflation levels TRANSITORY.) Last week, Pozsar pushed on the theme again with a piece titled, “Ride of the ‘Volkyries'” in which the issue of financial conditions tightening is discussed in reflection to current FED policy of curbing inflation through the crushing of demand.


Notes From Underground: Old Friends Sat On A Park Bench Like Bookends (Simon & Garfunkel)

April 10, 2016

I’ve been staring at this image and keep thinking about the three living Fed Chairmen that sat on the stage April 7 and the fourth that was teleported from Washington, D.C. I was thinking about the replies to weak questions posed by the  moderator and better questions from the audience. I thought about the question I would have asked first. I would have asked each Fed Chair what they had thought about the role of GOLD in the post-Bretton Woods global financial system. Ben Bernanke famously opined that he didn’t understand GOLD but seemed very comfortable visualizing a role for BITCOIN. Yellen has never openly stated her concern about the barbarous relic. Back in the 1960s, Alan Greenspan wrote a serious paper for the Ayn Rand society on the important role of GOLD in a global system and more important for the impact of  GOLD for a democratic capitalist world.


Notes From Underground: Volcker Finds His Voice

June 4, 2013

Ex-FED Chairman Paul Volcker delivered a speech on May 29, which served as a “shofar” blast, warning the FED and its governors to be cautious in possibly undermining the credibility that all central bankers strive to maintain. Mr. Volcker does not doubt the intelligence of Chairman Bernanke  but what he worries about “… is a matter of good judgment, leadership and institutional backbone” (READ THAT AGAIN). “A willingness to act with conviction in the face of predictable political opposition and substantive debate is, as always a requisite part of a central bank’s DNA.” Now, knee-jerk FED supporters (insert name here) will maintain that is what Bernanke did in presenting QE1, QE2 and QE3–but he certainly had the support of a democrat-controlled HOUSE and SENATE in 2010. Also, the White House was a fervent supporter of massive monetary stimulus as he helped keep the economy from sliding into a chaotic state of asset liquidation. The FED may have suffered the barbs of some “tea party” legislators but for the most part the major powers in Washington and Wall Street provided the needed support for the FED.


Notes From Underground: Six little words … “IN A CONTEXT OF PRICE STABILITY”

September 19, 2011

In Monday’s New York Times there is an op-ed piece by the GREATEST CENTRAL BANKER, Paul Volcker. It seems that the man who was shuffled aside by the Obama administration found a rather curious time to question the Bernanke Jackson Hole speech. (Especially since Obama and his economic team used Volcker to establish its “street cred” and then disposed of his giant stature by turning him into “AN INVISIBLE MAN.”)


Notes From Underground: Inflation sets on the BRITISH empire

February 15, 2011

The inflation data released by the U.K. showed that CPI has increased to 4 percent. The largest price increase was in INK costs as Mervyn King had to pen another letter to the Chancellor of the Exchequer explaining the price increases maintained during the BOE’s inflation-mandated levels. King has placed himself in a difficult position as he has held rates steady in the face of rising inflation. Governor King’s stance is the same as Bernanke’s. The rise in prices are due to elements that the CENTRAL BANK cannot effect and the inflationary impact is acting as a drag on the consumer. Why ?


Notes From Underground: FOMC minutes raise concerns about deflation

July 15, 2010

Yesterday’s release of the FOMC minutes seriously called to question the potential onset of deflation and it is causing the battle lines to be drawn. There is no question that the FEDERAL RESERVE BOARD is in the throes of a battle between those who remember 1937 and those who are more prone to favor some cleansing of the financial system by bearing the costs of too much debt. Thomas Hoenig, Jeffrey Lacker and others are worried that the FED has stayed too loose for too long and are merely going to recreate the atmosphere that was responsible for the current crisis. Bernanke, Rosengren, Kohn and others are output gap-oriented and remember the pain of stimulus removal before growth has gained traction. This is where we are in real time and the FOMC minutes reflect that the FED CHAIRMAN has and will prevail. Since Bernanke is an academic, he gives open debate a place in his FED–unlike the autocratic Greenspan. But debate is not outcome and while the media gets to fill time and space, the FED’s most recent minutes has illustrated a clear path.


Notes From Underground: If We Ran the World

January 22, 2010

Just thinking in the big picture…

If we ran Goldman Sachs, we would file to return to being a partnership which would preempt the Obama “Volcker Plan.”  Then Goldman should partner with  Blackstone and /or other private equity firms to ensure that they had a ready pool of capital. This would allow Goldman to lever its theme of being the smartest guys on the street and remove the government from the equation. Notes from underground is always about thinking outside the box! More will be forthcoming but we think we have been ahead of this issue for years, so stay with us on this.

Meanwhile,we view this newest wrinkle in the landscape as incidental noise as this will be a long drawn out process. The cheap money will prevail  but there is no doubt that global capital is nervous!

Notes From Underground: In Honor of the Great Optimist

December 29, 2009

Our readers may wonder why we refer to Mr. Volcker as the greatest optimist. Because at 82 years of age, he has announced his engagement. We wonder if this should put a bid to the bonds because this is a highly optimistic view of the world. If this couple announces the birth of a child, we will become downright irrationally exuberant about all things financial. We have great respect for Chairman Volcker so it is with sincerity that we offer up congratulations to the savior of western capitalism.

Yesterday the FED announced they were going to embark upon a term deposit facility to withdraw bank reserves from the system. This follows upon the use of reverse repos in a limited amount as the Federal Reserve continues to test the two pillars of liquidity withdrawal. Remember, this is just a test. As growth returns to the economy, the FED has a greater desire to apply practice to theory in order to remove the emergency liquidity measures. It is interesting that the FED is sticking to its previously disclosed plan where are seeing it laid out piece by piece. We applaud them for their truth in advertising.

However, several questions arise: Will it be effective and how will it affect the markets we trade? Will the DOLLAR rally as liquidity gets withdrawn and short-term rates increase? Will the yield curves begin to enter a BEAR FLATTENER? How will the equity markets respond? We will analyze these questions heading into the new year as the FED makes it attempt to remove the liquidity it willy nilly applied to the markets. We become skeptical to the positive effects for the DOLLAR because of the move by the Treasury to nationalize Fannie and Freddie. The more we think about this move by the Obama administration, the more bothered we are by how this seizure of suzerainty will lead to a total corruption of the housing market and the greater economy. We are evidently more bothered then the markets but this is certainly on our radar screen for 2010.

In the markets, we saw the Bank of Israel raise interest rates 25 basis points to 1.25 %. Stanley Fischer, the bank head, is widely respected and his moves bear watching as an indicator of global growth. When GOLD was making its highs earlier in the month, Mr. Fischer stated he thought the rally in GOLD was mistaken because there wasn’t the inflation to support the move in GOLD prices. While we disagree with his views on GOLD and inflation at this time (we think it is a deflation story), his thoughts carry significant weight in the world. Just like Norway raising rates earlier in December, we need to be aware that the peripheral economies are beginning to experience enough growth to warrant raising rates. The question we will have is: Why are the banks raising in quarter-point increments? If the economies are truly experiencing growth, then the banks need to raise rates more aggressively. This Greenspanian game of quarter-point increments needs to be put to rest if the central banks are to have any credibility. When the economies were under stress, rates were slashed by 100 basis points, thus creating an assymetric relationship which results in irrational risk taking. To restore some sanity to the global financial system, we need central banks to act more responsibly in stimulus as well as restriction. The consistency of the global monetary authorities is needed to enhance stability, especially as the world comes to terms with dealing with the huge pool of liquidity that has been pushed into the global financial arena.

Yesterday’s 2-year note auction was the yawner we talked about on CNBC to the chagrin of Anchor Michelle Cabrera. Today’s 5-year auction will be much more interesting as we wait to see if investors find value further out on the curve. Tomorrow’s 7-year will be followed to see if the value out on the curve has any legs. This year-end thinned market may create some interesting movements as we will see if the treasury selloff has been enhanced by some market players selling futures ahead of the auctions to have some insurance against a disastrous result. If the auctions come out better, we shall likely see some hedges lifted leading to a short-term rally. We also bring attention to the fact that the British Gilt market is under severe selling pressure and this is in a market where the central bank’s purchasing program is still active, thus alerting us to the possibility that investors have absorbed enough sovereign debt and are satiated. This will be the biggest issue for the financial markets in 2010. But how much is too much?