I recently watched The Big Short, the 2015 movie recounting the housing crisis. I avoided the movie, and the book of the same name, for years. But I saw the title on Netflix and thought, “Now’s the time.” I followed the crisis’ every twist and turn, starting in the summer of 2007 when a quiet little corner of the bond market – municipal bond floating-rate note auctions – blew up. I found the steps leading to the crisis, and the events in the aftermath, appalling.As I watched the movie, the sense of dread and disappointment I felt 10 years ago rushed back. So did the anger. “Not my fault.” That’s what everyone involved in the financial food chain said.
David Stockman has always been a contrarian fellow. Indeed, following his long Wall Street and private equity career, he founded a kind of contrarian blog called David Stockman’s Contra Corner. Conventional wisdom seldom appears on that site. Old-timers will remember Stockman as the brilliant two-term congressman tapped, as a very young man, to become Ronald Reagan’s first OMB director. He quickly ran afoul of the Republican establishment by demonstrating discomfort with the size of supply-side tax cuts pushed by his boss. Younger folks may recall his 2013 book, The Great Deformation: The Corruption of Capitalism in America, a scathing indictment of the twin scourges of crony capitalism and massive governmental debt.
The reason the Chinese want more “dollars” is that they have pushed the limits of current internal policy. Starting in early 2016, the central bank shifted to cushion the downward monetary effects of “dollar” outflows by opening several liquidity conduits available largely to the largest banks. It was never quite enough, especially in the back half of last year when money rates started to rise. There is nothing of actual practice that prevents the PBOC from simply “printing” RMB in greater amounts than they have done. Should they wish, they could. The fact that they haven’t, however, demonstrates fully that the Chinese remain tied to the “dollar” no matter how many times they might make noises about getting away from it.
Yes, this time it’s different: all the foundations of a healthy economy are crumbling into quicksand. The rallying cry of Permanent Bulls is this time it’s different. That’s absolutely true, but it isn’t bullish–it’s terrifically, terribly bearish. Why is this time it’s different bearish going forward? The basic answer is that nothing that is structurally broken has actually been fixed, and the policy “fixes” have fatally weakened the global financial system.
For those of us who have taught journalism or worked as editors, a sign that an article is the product of sloppy or dishonest journalism is that a key point will be declared as flat fact when it is unproven or a point in serious dispute – and it then becomes the foundation for other claims, building a story like a high-rise constructed on sand……But what happens when this sort of unprofessional work tops page one of The New York Times one day as a major “investigative” article and reemerges the next day in even more strident form as a major Times editorial? Are we dealing then with an inept journalist who got carried away with his thesis or are we facing institutional corruption or even a collective madness driven by ideological fervor?
…….This demonstrates something routinely overlooked in the anxiety about the job-destroying potential of robots, artificial intelligence and other forms of automation. Throughout history, automation commonly creates more, and better-paying, jobs than it destroys. The reason: Companies don’t use automation simply to produce the same thing more cheaply. Instead, they find ways to offer entirely new, improved products. As customers flock to these new offerings, companies have to hire more people.
Recently on our Twitter feed, @michaellebowitz, we introduced the hashtag #fedgibberish. The purpose was to tag Federal Reserve members’ comments that highlight desperate efforts to rationalize their inane monetary policy in the post-financial crisis era. This past week there were two quotes by Fed members and one by the head of the European Central Bank (ECB) which were highly deserving of the tag. We present them below, with commentary, to help you understand the predicament the Fed and other central banks face.
In its first run, the Federal Reserve was actually two distinct parts. There were the twelve bank branches scattered throughout the country, each headed by almost always a banker of local character. Often opposed to them was the Board in DC. In those early days the policy establishment in Washington had little active role. Monetary policy was itself a product of the branches, the Discount Rate, for example, often being different in each and every one. The intent of the Board was to coordinate rather than dictate. It all changed in 1935 with the Banking Act. Somehow the Fed after making massive monetary mistakes for more than just the crash was given more authority. Politics is a powerful force, even for the otherwise “independent.” The Act formalized the Board’s role in centralizing monetary policy consistent with government consolidation everywhere else in the wake of the Great Depression.
While ECB President Mario Draghi faces his own German-bond-market constraints in his hubristic bond-buying-bonanza, cornering him to taper sooner than later; the Bank of Japan appears to have thrown every textbook out of the window and cranked their plunge-protection to ’11’, as Bloomberg reports, The Bank of Japan now holds 75% of the nation’s ETFs.
On the 16th anniversary of 9/11, a prescient Hunter S. Thompson column from the day after the attacks was shared on social media. Thompson wrote at ESPN on Sept. 12, 2001: “The towers are gone now, reduced to bloody rubble, along with all hopes for Peace in Our Time, in the United States or any other country. Make no mistake about it: We are At War now — with somebody — and we will stay At War with that mysterious Enemy for the rest of our lives”….. Thompson couldn’t have been more right. More than a decade and a half since the attacks, the United States has led regime change in Iraq and Libya and is still bogged down in the longest war in American history in Afghanistan. During that time, Al-Qaeda has been diminished but remains. A group even more extreme that al-Qaeda, the Islamic State (also sometimes known as ISIS), has risen in the power vacuums created by U.S. interventions.