Scott Sumner has a new post of a style that is familiar to me, expressing puzzlement regarding the lack of acceptance of monetary policy’s culpability in the 2008 economic crisis given some very basic facts of the matter. It is quite good and speaks for itself. Please read it, as there is nothing I could possibly add here that would improve it.
Recently, I had a brief exchange with a reader who is concerned about current holdings of stocks. But I am sorry that there isn’t much I can say in consolation regarding the turmoil, though I feel very terrible about it.
And I have a confession to make. Though my sentiment lately has been more positive (as it turns out, quite unfounded to say the least), up until a few weeks ago my trust in the Federal Reserve to appropriately address adverse monetary situations was quite thin, a point I expressed in several posts like this one regarding a lack of response to increasing dollar demand. I did not invest in stocks specifically for that reason and because I have neither the skill nor time to manage short-term holdings to my advantage in monetary uncertainty. I chose bonds with a dash of physical gold and cash as a mostly defensive strategy. There would be time to fix my portfolio if I turned out to be wrong in betting against Fed competence.
Yes, I was willfully contributing to the excess demand for money and setting myself up as a creditor for what I saw to be a likely scenario of premature tightening, due in part to a general lack of contextual monetary policy formation. And no, I did not choose gold because I think hyper-inflation is around the corner, quite the opposite. I chose it because the frenzy of inflation-o-phobes and bubble fear-mongering during a disinflation drives the market up, and I can profit from their unfounded fears – buy low and sell high (and gain a sense of poetic justice). That strategy as it pertains to gold is one that saved my family from starvation during the Great Recession – no joke – and I’m hoping to expand it to bonds and profit off the rush to the exit.
Really, isn’t that what firms like Blackrock are doing? So it isn’t surprising to see them calling for a FF rate hike now – today. They have tons of defensive positions from the 2008 crisis and have been exerting as much influence as they can muster for even tighter money. I am not positive, but they are likely part of the upstream paddling Bernanke faced for QE. From a general welfare point of view, this CNBC article with Blackrock calling for an immediate FF rate hike during deflationary turmoil (large increase in the demand for USD) makes absolutely no sense and is indeed perplexing. But to self-interested, short-term looking Blackrock, it makes perfect sense – tighten money so it can profit off the disaster. This is a nefarious piece of advice right out in the open.
So, they blamed the 2008 crisis on housing and people gorging on credit. What is the excuse now given that not even Bernanke can re-fi? Ukraine? Oil? Please.
Actually, the façade of the EZ is now continuing to crack. The second-most powerful political party in the Italian parliament is calling for a referendum on exiting the euro. EZ citizens are recession wary with their third trip down the drain since 2008 as Germany interferes with the ECB. I have been saying that bad monetary choices for the EZ would eventually catch up to Germany, which is now coming to fruition. I suppose that if I could get a list of the plaintiffs in the OMT case against the ECB, many of them would either be like Cliff Asness – wrong but no clue as to why or how, or they are individuals with defensive positions that they wouldn’t be able to redeem should the appropriate monetary policy expansion occur. These people care nothing about the real human suffering that is driven by monetary deflation, and their short-term goals only serve to flush any future the EU/EZ have completely down the drain – and take many people across the globe along for the trip over the cliff.
Unless the Fed does something very soon to stem the appreciation of the dollar, I wouldn’t count on the third EZ deflationary recession not being imported by the US in Fed errors of omission. That’s the consequences of non-contextual monetary policy, trying to steer the car by looking in the rear-view mirror or not particularly caring about the nominal anchor at all. I wish I had more encouragement to offer, but I don’t.