There are meetings that you would have liked to be a fly on the wall. How about the decision meeting to make my favorite comedy, It's a Mad, Mad, Mad, Mad World?
For you young folks and citizens of foreign nations, it is a story of human foibles. It was made at a time when Hollywood actually made movies with a plot and character actors gave the films depth. In a nutshell a bank robber is fleeing LA. He panics while driving along a dangerous road. He wipes out. His car crashes off a cliff. Innocent bystanders stop to assist. A small group tries to help the man, but he dies. Just prior to dying, he informs his helpers that he hid his money under the "Big W."
They debate and think nothing of it until each sees another turn around on the highway, going back to LA. The madness begins. This is a great, great and funny movie with a fabulous cast which includes the 3 Stooges. Enough said. The rest takes you and me back to today.
ECB
They had their private meeting last week. Mario Draghi attended his next to last meeting. His eight year term is ending with Christine Lagarde taking over the ECB. He is going out the way that he came into the chairperson position. He cut rates into a deeper negative yield and he reinstituted QE. He prints money like you and me breathe air. The above movie could make a sequel today centered around central banking. This is not a foible. This is idiocy. You buy a bond and you guarantee that you will lose money over its maturity. These geniuses would rather lose money than admit that they are wrong. That fiat money never succeeds and one cannot engineer an economy. They never speak of gold, especially as a currency.
Fed
They will have their private meeting on the 18th. President Trump has put pressure on the chairman, Powell to cut rates. Trump wants the dollar lower to help with exports. He has pointed to the Fed that Europe with Draghi just cut rates and he expresses the same path to include negative rates. Keep in mind when Trump was wheeling and dealing in his younger days, he was constantly seeking cheap money to finance his buying sprees. Needless to remind you that many of his business went bankrupt and he was close a few times himself. By the way his federal budget is already over one trillion to the red. He does not know how to save for a rainy day and the weather outlook has clouds on the horizon.
We, at Evolution of Democracy expect the ego of Powell to cut rates again like he did in the last meeting. I, especially use the word ego because President Trump has suggested that he might seek a way to fire Powell, if he does not do what the president desires. The market is expecting this cut. If Powell shows some gumption and hold rates, the market will rollover. This could be a no show or big showdown. We'll know later today.
In an open meeting former chair, Greenspan said, "The US will get negative rates." He does not blame fiat money for this rate movement. However, we already knew that he is a hypocrite from his quick switch from gold to fiat. His classic essay on money backs gold, but later in life when offered the job at the Fed, he changed his position. Nothing like money to give one a different perspective. Of course, his ego helps too.
And then this - on Tuesday the New York Fed governor had to inject $53B to steady the overnight repo market. This happens when short tern rates run up too fast and there is not enough liquidity in' the market. Now, he say the market will need another $75B on Wednesday. Yeah, these guys have things under control. The last time the N.Y. Fed had to enact such measures was in 2008. Didn't Bernanke say at the time, "all is contained"?
The rest of the followers...
they play the currency manipulation game. They will cut as they have done already 38 times since the Fed changed course and stop raising interest rates. To give you some more perspective, central banks have cut rates 14 times since August which followed 8 cuts in July. Dear Reader, this foolish practice by emerging markets along with Japan and China. This does not help their economies. They forget that their biggest expense is oil. They need to buy US dollars to purchase oil. By cheapening their currency to drive exports, they increase their deficits to purchase necessities like oil. No one seems to look out into the horizon to see the storm clouds forming. Central banks are raising cash today by selling negative bonds. Tomorrow, they will be in a deeper hole because they are guarantying that they lose money over the duration. Yes, this is a Mad, Mad, Mad, Mad World.
