Larry Summers is out…and the markets act like it matters. He sent a short letter to President Obama withdrawing his name from consideration as the replacement for Ben Bernanke. The letter was short, sweet, maybe to the point and maybe not. Summers pointed out that his confirmation would be “acrimonious” which is an understatement to say the least. Could it be that Larry Summers fought through the “delusions of grandeur” and decided that was going down in the history books as the Captain of the Titanic financial system was not such a great idea?
The markets have reacted in schizophrenic if not delusional manner. Stocks are up very strong as they anticipate another candidate willing to write higher dose prescriptions of liquidity. Bonds are also up (yields down) in anticipation of slower, lesser or even no “taper.” These 2 markets however are trading in opposite fashion from commodities which are the true beneficiaries of excess liquidity sloshing around. Oil is down better than 1%. This really doesn’t make any sense as oil demand (both real and on paper) should rise if a “Fed Dove” at the helm keeps pushing money and credit.
Gold and silver are both down…and both up from Friday. Up from the COMEX close and down from the “cash” close after the Andrew Maguire rally. This stinks to high heaven. The trading action has been that QE (which used to be very bullish) is bearish for the metals (why or how I do not know) and tapering is also bearish. This “portrayal” is bogus and I guess we must wait until supply is gone and the physical markets steam rolls the paper markets as the price mechanism.
In any case, Summers, Yellen, Kohn, Geithner or even (no chance) Volcker…it doesn’t matter. The dollar system is entirely a lost cause. No one or no policy can ever “right” the position we find ourselves in. Print, don’t print, QE, don’t QE, raise taxes or lower taxes, cut spending or spend like drunken sailors…it’s over…it’s mathematically over. “New money” is no longer entering the U.S. Treasury market; in fact, old money is exiting the market which leaves ONLY the Fed as buyer of last and ONLY resort.
The “market” itself is not “making” interest rates, the Fed is. In the old days the Fed would “influence” short term rates and let the markets fend for themselves and “discover” where rates should be in the 1 yr. and longer maturities, this is no longer so. The Fed has been “making interest rates up” like a bad liar for the last 5 yrs., we know that central planning does not work because we have seen so many failed examples in so many different countries since the beginning of recorded time…and this IS central planning.
Since 2008 the “liquidity dump” administered by the Fed has only done one thing, the banks have not failed “publicly.” The “too big to fail” banks have been allowed to mark assets/derivatives to whatever fantasy prices of their choosing which has allowed them to “live.” The liquidity dump and record deficits have not turned the economy up, we are only bottom bouncing. The record low interest rates, record deficits and literally unlimited liquidity stopped the economy from falling any further but have not turned Main Street into one of growing commerce.
My point is this, by all rights and history with all of the policy “stimulation” we should have a rip roaring economy 5 years later…we don’t…and we won’t. I guess the analogy boils down to “who cares who is driving the bus if the motor is overheating, it’s leaking oil and water and sparks are flying from the rims?” Does it matter who the chairman of the Federal Reserve is? No. Alan Greenspan was the last chairman who mattered because sometime in the late 1980’s or early 90’s was the last time, last chance…to change or alter policy and take our medicine and accept a full-fledged recession to cleanse the system.
Greenspan never did this, Bernanke couldn’t do this and surely his successor has no chance of ever allowing money growth or credit creation to slow down much less turn negative. Like I said, “it doesn’t matter” because this Ponzi scheme is going to hit the wall as sure as the Sun will rise tomorrow. Does one policy cause it to happen tomorrow while another postpones it for another 6 months? Yes, maybe but the further down the road we go the worse it will be when this thing busts. We have more debt, more derivatives and more “players” (which now include many sovereign governments) involved in this bubble than we did 5 years ago.
It would have been bad, really bad if we cleansed debt via recession in 2000-2002, it would have been catastrophic in 2008-09. Now? I do not know any words to describe what we face. Whoever is chosen as the next bus driver for the Fed will go down in the history books as the one who was driving when we hit the wall. It matters not who it is; I can only wonder “who in their right mind” would accept the job? If they don’t understand the futility then shame on them, if they take the job because of the “prestige”…well, like I said, “no one in their right mind would even consider taking the job”… That is if they are smart enough to know.
RE:”No one in their right mind would even consider taking the job.” True-true! I don’t know who said it, maybe Mark Twain… (it regards the Presidency but it works equally well, at this point in history, for Chairman of the Fed)
“Anyone stupid enough to want to hold the office ought to immediately be disqualified from doing so.”
Enjoy your commentaries Bill. You are spot on. What is hard, though, is watching the charade go on endlessly, both from the perspective of the shunning of truth and the continued pain to investors who refuse to pump up the beast but instead hedge with PMs or cash.
The truth, when it comes will be VERY fast!