'..BIS chastises central banks .. More fundamentally, monetary policy cannot be the engine of growth.'

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'Hitting the nail squarely on target, the BIS chastises central banks "What is good for today need not necessarily be good for tomorrow. More fundamentally, monetary policy cannot be the engine of growth."

Central banks, beg to differ. Markets are going gaga over expected rate cuts while Trump plays a year-long tune of on-again off-again tariff threats.'

- Mike "Mish" Shedlock, BIS warns of Diminishing Returns of Monetary Policy, Zombies, Junk, Complacency, July 1, 2019

'Many politicians and academics favor Keynesianism because it offers a theory by which government actions can become decisive in the economy. It lets governments and central banks meddle in the economy and feel justified..'

'Central banks around the world and much of academia have been totally captured by Keynesian thinking. In the current avant-garde world of neo-Keynesianism, consumer demand—consumption—is everything. Federal Reserve policy is clearly driven by the desire to stimulate demand through lower interest rates and easy money.


Many politicians and academics favor Keynesianism because it offers a theory by which government actions can become decisive in the economy. It lets governments and central banks meddle in the economy and feel justified. It allows 12 people sitting in a board room in Washington DC to feel they are in charge of setting the most important price in the world, the price of money (interest rates) of the US dollar and that they know more than the entrepreneurs and businesspeople who are actually in the market risking their own capital every day.

This is essentially the Platonic philosopher king conceit: the hubristic notion that a small group of wise elites is capable of directing the economic actions of a country, no matter how educated or successful the populace has been on its own. And never mind that the world has multiple clear examples of how central controls eventually slow growth and make things worse over time. It is only when free people are allowed to set their own prices of goods and services and, yes, even interest rates, that valid market-clearing prices can be determined. Trying to control them results in one group being favored over another.


..[a] static economy does not raise overall income or wealth. Only an economy that is growing as a result of a healthy level of savings and investment can produce the results Keynesian economists want: increased incomes for everyone.

Your typical Keynesian economist isn’t willing to wait for savings to become investment. They and the politicians they serve want results today. And the only way to get results today is to get people to spend today, while the process of saving and investing takes time.

Neo-Keynesian economists are ultimately teenage children who want the pleasure of consuming today rather than thinking about the future. And I won’t even go into the burden we are placing on future generations by borrowing money to goose our current economy and expecting them to pay that money back. We are building toward a future intergenerational war that is going to be very intense once our children learn how we misspent their future. But that’s yet another letter.

- John Mauldin, Ray Dalio - John Mauldin Discussion, Part 5, July 06, 2019

'I’ve witnessed a lot of “crazy” in my three decades .. Yet nothing compares to the ongoing global yield collapse .. how high can U.S. stocks trade if Treasury yields go negative?'

'I’ve witnessed a lot of “crazy” in my three decades of closely following various Bubble markets (i.e. Japan’s Nikkei ending 1989 at 38,916 (closed Friday at 21,746); manic early-nineties buying of Mexican tesobonos; late-1993 collapsing U.S. yields and Bubble excess that portended the 1994 rout; speculative Bubbles in SE Asian securities and Russian bonds; LTCM with $2 TN notional derivatives exposures; Internet and tech stocks in 1999; and $1 TN of new subprime CDOs in 2006; etc.). Yet nothing compares to the ongoing global yield collapse.

The global bond market speculative melt-up has brought new meaning to phrase “indiscriminate buying.” I know it’s heresy to suggest as much, but we’re witnessing history’s greatest speculative Bubble go to absolutely “crazy” extremes (it will all have been obvious in hindsight).

According to Bloomberg, the amount of negative-yielding debt globally jumped Thursday to a record $13.4 TN. Rising almost $2.2 TN over the past month, “negative-yielding debt now comprises 25%” of the total investment-grade universe.


It's a quandary. When markets go into speculative melt-up mode, the signaling process turns dysfunctional. Technology stock prices in March 2000; record high equities prices in July 1998 and October 2007; sinking bond yields in late 1993. Never before have so many securities (bonds and stocks) been held by passive index products; and never have algorithmic trading strategies played such an impactful role in the marketplace. Moreover, never have global securities and derivatives markets been so closely interconnected. And perhaps most consequential, never have central bank policies had such a profound impact on global bond prices, market perceptions and speculative trading dynamics.

Central bankers are now faced with the predicament of having nurtured distorted markets (with aberrant signals) that will throw a frenetic tantrum if central banks don’t follow the markets’ directive. There is bold discourse aplenty these days regarding the merits of an “insurance” rate cut. Chairman Powell himself has stated “an ounce of prevention is worth a pound of cure” – a comment markets have interpreted as guaranteeing a July cut. Pundits, including former central bankers, have been speaking as if there is essentially no risk to a cut they believe would offer protection against bad outcomes. This, however, completely disregards the risks associated with adding monetary stimulus to dislocated global securities markets already in dangerous detachment from fundamental realities.


It used to be that seasoned market players would fret late-cycle excess (appreciating associated fragilities). But that was before “whatever it takes” QE and $13 TN of negative-yielding global bonds. Why not buy 10-year Treasuries at 2.0% when bunds trade at negative 0.37%. Why not own U.S. investment-grade bonds at historically (highly) elevated prices that appear attractive relative to negative-yielding European corporates? Junk, even better. MBS, why not. Basically, virtually the entire fixed-income universe is expensive on a fundamental basis - yet cheap relative to negative-yielding foreign bonds. And how high can U.S. stocks trade if Treasury yields go negative?

Market speculation used to be grounded in “the greater fool theory”. Who needs a fool when markets have central bankers with the wizardry of their QE tool. Bonds have been around for centuries, but we’ve finally reached the point where there is no longer a ceiling to bond prices. This is a precarious juncture for global markets, and the Fed should think twice before it feeds this beast.'

- Doug Noland, Abject Monetary Disorder, July 6, 2019


'We’re witnessing Bubbles and Craziness in historic proportions.'

'..things continue to follow the worst-case scenario .. It was another blunder for the global central bank community..'

'..monetary knowledge .. of currency reform under difficult conditions you have to go to Carl Menger.'