'..The Fed may not today fancy the idea of negative rates, but highly leveraged speculative Bubbles will eventually demand negative borrowing costs – along with “yield-curve control”, Fed stock purchases and about any market-supporting measure a creative mind can conceive. Nothing will be off the table.''The Fed has abandoned its overarching responsibility for maintaining monetary stability (sustaining Bubbles being antithesis to monetary stability). No amount of monetary expansion is too much - no degree of market intervention excessive. They’ll gladly monetize even the most egregious federal deficits. Zero rates – negative real returns for savers – are fine for as far as the eye can see. No crackpot theory is unworthy of consideration.
And why do markets expect it’s only a matter of time until negative rates – despite pushback from Fed officials? Because markets believe efforts to sustain highly inflated Bubbles will foment “kitchen sink” desperation. The Fed may not today fancy the idea of negative rates, but highly leveraged speculative Bubbles will eventually demand negative borrowing costs – along with “yield-curve control”, Fed stock purchases and about any market-supporting measure a creative mind can conceive. Nothing will be off the table.
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As I’m working to wrap up this week’s CBB, protests and violence are escalating in cities across the country. We’re seeing the most inflamed racial tensions in years. From a political perspective, the country is the most bitterly divided in decades. Wealth inequalities are, as well, tearing away at our nation’s social fabric. And somehow the pandemic strikes with freakish timing and ferocity – dousing gas on myriad smoldering social, political, financial, economic and geopolitical fires.
It’s the worst-case scenario - my worry list coming to fruition. Social and political instability; a global pandemic; a runaway Fed balance sheet swiftly on its way to $10 TN; faltering Chinese and EM Bubbles; rapidly deteriorating U.S. and China relations; a disintegrating geopolitical backdrop; along with a final speculative “blow-off” throughout global finance. Markets have been corrupted, while the masses are increasingly disillusioned and insecure. A wrecking ball is chipping away at trust in our institutions.
The global Bubble has been pierced, though unprecedented monetary inflation only exacerbates the epic divergence between inflating asset prices and deflating economic prospects. As I’ve written over the years – and as demonstrated rather conspicuously in March: contemporary finance seems to operate miraculously – so long as it’s inflating. It just doesn’t work in reverse. These days it’s even more frightening to contemplate how this all ends. The Scourge of “Whatever it Takes” Monetary Mismanagement.'
- Doug Noland,
The Scourge of “Whatever it Takes” Monetary Mismanagement, May 30, 2020
Context(Banking Reform - English/Dutch) '..a truly stable financial and monetary system for the twenty-first century..'