Seems like the news are getting riddled with inflation discussions all over. Yesterday we got The Economist, and today we get Bloomberg, courteously giving a pen to Carmen M Reinhart.
There is a whole lot of words and there is very little explicitly concluded. True to the colors of academia, there is a lot of verbiage identifying the culprit and very little attempt at a solution. Financial repression is getting hinted at in the title, provocatively enough and then only mentioned in passing and concluded with. Still, a lot of gems to be found.
- Negative real interest rates discussion. Well, since the government-included economy isn’t collapsing and we’ve had a bout of zero rate interest policy due to nested positive feedback loops that can be described in any manner of obscene illustrations, surprise! I’m not saying I’m first on this (research takes longer than flash-in-the-pan ideas), and the data is pretty interesting to look at, but this is a rehash of what I’ve already posted about so I won’t dwell on it.
- Not entirely certain of the fear-mongering that was pushed out near the middle. Re-regulation of finance? You’re saying its a bad thing to split banks into socially useful entities and casinos and ship the casinos out to remote islands like we did with the brick-and-mortar non-bank ones? Home bias in finance? As opposed to size/liquidity/regulatory/arbitrage bias to scour the world for any place where you have zero regulation, TBTF status, and can bribe your way into insider knowledge with an insider-trading exempt congress? I think we could use some more home bias, particularly to prevent a little bit too much of hot money inflow which scalded the Asian Tigers as the tsunami passed on the way out some 15 years ago. It can be countered on the currency pegs, but still, current liquidity conditions aren’t accommodating to monetary policy in emerging markets. Yeah Geithner, that’s Benny B’s fault, not Gramp Wen’s.
- The idea that negative real interest rates is just another idea for stimulus/overheating pressures/backdoor taxation rings a bell, but I can’t really recall from where…
- Negative interest rate returns for savers is nothing particularly worrying. After all, who cares about the 99% way of a deposit account? Bonds are the way to go, and voila! Problem solved, infinite printing and shadow taxation ensured by people actually looking at total returns weighted for risk, pension savers and mattress-employing tin foil hats be damned. Read a few paragraphs down in the paper to really see where this comes home to roost. (Hint: government bonds.)
- Market manipulation? No, the market is dead. Honestly, “we’re gonna buy this junk until people realize it’s overvalued and jump ship into the non-government economy” being official monetary policy? (That is what “push investors out the yield curve” means.) This is after we had an IT-bubble with P/E’s well into the 1000+ zone if we had a profit at all, and no explanation for how this was going to be brought into the 10 range? This is after sequences of housing and finance bubbles in northern Europe, Japan, etc.? And we’re surprised as to why people are buying government bonds…
- The chart on real interest rates (no. 2) is somewhat interesting!
Fish for your own little gems in there, but I do worry now that the Chinese purchases of Treasuries (which were formerly sorely needed to maintain their currency peg) are now spinning in reverse, showing that perhaps, just maybe we are getting some negative feedback loop elements into the entire system. Short circuiting is possible, but I guess that’s the price of change.
Bloomberg just followed up with this pear(l). Maintain full focus on the third paragraph:
“The major central banks have learned there are deep, pernicious problems,” said Nathan Sheets, New York-based head of international economics at Citigroup Inc., who held a similar position at the Fed until August. Now they are taking a cautious approach on where their economies are headed “and a more simulative[sic] stance of monetary policy.”
The followup is really priceless from just coming off reflecting on the Reinhart piece. But it’s a pretty good thing to read just in case you want to be short anything.