Wednesday’s Troll Update

More insane jibber-jabber from isolated eggheads today. Fed funds rate: unch.

I find it too depressing for words that the world stops for this nonsense. Actually, the heartening thing is that only the financial world stops: everyone else, you and I, continue with our business.

In a way, that encapsulates the problem. Aunt Janet and her posse think the world is financial markets. That is a direct result of the financialization of everything that moves, which creates an awful feedback loop. Markets must be ginned, so let’s do something, and when they don’t react, let’s do some more, oh wait, they’re over-reacting, let’s do less…until the powerful ignore everything else.

Everything else is what we do. We work, we earn, we spend, we save, we invest, we sell, we start businesses, we attempt to multiply our assets; this is what used to be known as the “real” economy.

Unfortunately, elites find the real economy uncontrollable. Chaos does not react so well to central authority. Much easier for those authorities to focus on simple stuff, like keeping big banks and big business happy. They appreciate much more the gifts Aunt Janet bestows.

Let the peasants sup on what sluices down from the castles. They’ll learn to love it. In time.

Barf

Aunt Janet pontificated again today. I think this used to be known as Humphrey-Hawkins testimony, a term I kind of liked.

I don’t know what she said, but if it was indeed to congress, the picture that comes to mind is of the ugly girl from school who worked hard and got somewhere talking to even uglier people who did not.

And we don’t need to know what she said because markets, bless their wee souls, told us everything. Look at a chart of the TY or US futures, daily bars, and you’ll see the rush of people buying them.

The only vaguely interesting question is Why? For safety? For the yield? Because everything else looks broken? When all one’s other toys are in pieces, we go back to the simple things, like buckets and spades. Long bonds at this point are the toys for two-year olds. Not broken, but not really of any use either. And certainly not fun.

Pathway to Now

Our memory is a variable quality asset. Ask any defence attorney. Eyewitness accounts of an (alleged) crime are often their way to acquittal. On forgetfulness and doubt are borne the many releases of the guilty.

Forgetting is not restricted to courtrooms and police interviews. How many economists remember the 1990s? Do they remember the nervous tensions surrounding the big, decade-ending party, the Y2K event? They do not, it seems.

My memory is particularly clear, and unusually specific. On January 1st, 2000, I was scheduled to fly from Sydney to Manila, in a Boeing 747. I was the pilot in command. The fear within the airline was not about the aeroplanes, because they’ll either work or not. If they start and get going, they’ll keep going. The uncertainty lay with all the electronic ground infrastructure it takes to co-ordinate the progress of an airline flight between the many jurisdictions involved. Primarily there is Air Traffic Control. Secondarily there are ground-based navigation aids. And thirdly are the facilities and handling equipment for passengers and freight at either end of the journey. No-one was quite sure how much of this stuff would work…nor what to do if it didn’t.

These and many other problems were forseeable, of course. The date was right there on the calendar. Whether embedded computer routines in actuators and chips would work when the year read “00” was a matter of much speculation, all of it junk.

In the US, Mr Greenspan too was in touch with this problem. Being a central banker, and this being a problem big enough to be worthy of his valuable time, he applied his rigorous analysis to it and came up with the answer. Guess. Yep. In an amazing turn of events, the Fed decided that the answer to any possible computer problems was….TADA!… more money.

Preceding the turn of the calendar, the Fed provided hitherto unprecedented amounts of “liquidity” to the banking system. The idea was simple (and ostensibly reasonable) enough – if there were big problems, especially with power grids and big industry, they would need to borrow lots of money fast. The fix for large-scale outages would necessarily involve lots of money, which the Fed deemed beyond the ken of the businesses concerned.

As anyone who woke up that morning and flew to Manila learned, there was no problem with the flip to the new century. And by no problem, I mean literally and worldwide no problem. We sailed across Australia and into Indonesian and then Filipino airspace with the usual aplomb. Of course we were talking on WW2-era radio (High Freqency) but all the ATC co-ordination worked, as did the Ninoy Aquino airport and the Manila Hotel when we got there. Well, it worked as much as it ever did.

The big day of highly anticipated problems came and went without any difficulty. And what did the Fed do? Well, nothing, as it turns out. All that money they’d provided for “the system” was still there, sloshing around. One wonders where they thought it would all go, because, like water, the cash has to go somewhere. Dollars find the path of least resistance. and that they did. Right into 2007, and the weirdness in which we find ourselves – still – in 2015.

Data Drivel

People paid to entertain us in media have been mouthing the Party Line viz: the FOMC was and remains data driven.

If this were the case, that x input meeting y requirement equals z rate rise or fall, then why do we pay these economic chimps at all? Why not have an appropriately programmed robot do the numbers and act accordingly?

Seems to me that the interest rate rise this week will be just in time for the ensuing recession, thereby allow Sister Janet to lower rates…in response to data, of course.

And another thing. When spokesmorons refer to our “full employment” can we please also make reference to the 94,000,000 million Americans (and proximate Americans who reside here ahem) of working age who are not even counted in these “data”.

None of this is particularly esoteric, but apparently no-one with a megaphone of any size wants to upset the neatly packaged system that’s laughingly called a free economy.