Mint – Blain’s Morning Porridge
I feel a rant coming on… (US readers – widespread and indiscriminate use of sarcasm and cynicism is possible.)
Yet today, as the world’s central bankers gather in that pretty part of Wyoming, could be a game changer. I suspect Janet Yellen, Mark Carney, Mario Draghi, Harukiko Kuroda and the rest of the world’s central bank geniuses know the game is nearly up. The blunt truth is palatable: whatever monetary experimentation they’ve tried isn’t working.
As if to illustrate the case: this morning we learn Japan CPI (consumer price index) inflation has declined for the fifth month. Brilliant. The Bank of Japan is only 3% shy of its 2% inflation target set three years ago. The economy is mired in serious deflation and all that says about the perilous state of the their thinking. And Kuroda-san is expected to do more of the same kitchen sink easing.
If the definition of stupid is to keep doing the same thing expecting a different outcome, then explain to me what the Bank of Japan should do next. There is something of “cavalry charging tanks” when it comes to the BoJ’s full quiver of five arrows and all that guff. With the monetary experimentation armoury empty, what are they going to do next? This is real economics and deflation they’re fighting...
So, on the basis that Ms Yellen is a smart, self-aware rational being, I’m expecting some quite strong commentary this evening about the need to do something else. Call it normalisation and start raising interest rates. It would be a step in the right direction to re-establishing the real value of money, the roles of economic players (savers and spenders), and a dynamic economy that incentives real economic activity.
The only activity the last seven years of monetary experimentation has positively driven is speculation in financial assets, buying the instruments central banks have targeted. Such speculators have basically gorged on government largesse.
I’ve read much nonsense asking why the “natural rate” of inflation is so low..
There is nothing natural about today’s rate of inflation. There is absolutely nothing natural about what the monetary experimentation of the last few years has achieved! This was the deliberate manipulation of interest rates by central bankers chasing whatever objective they think they were chasing. Regulatory oversight...making banking safer…or what?
What has it achieved? Monetary stability? Well yes.. money is stable if you consider a null-entropy system to be stable. An economy trapped in amber where zero rates and zero growth reigns supreme? Future economists can dissect it and extract its DNA (Deoxyribonucleic acid) to figure out the great mistakes of 21st Century central banking.
Economies are extremely complex beasts. They are not machines that can be tinkered with a tweak here and a tightened nut there. Time perhaps for central bankers to think about the reset button – and how to re-establish the market-driven functioning of economies.
Are there any positives? Well yes...stop worrying about government debt. The central banks hold most of it. Just forget about it. Take a Jedi moment: “these are not the bonds you are looking for…”
But as for a global reset? Bonds. Ouch. Stocks. Ouch..
Out of time.. but do make sure to have a really lovely weekend…
Head of Capital Markets / Alternative Assets