Monthly Archives: September 2016

A subtle, self-restrained, change of heart.

Regarding eternity, it is my conviction that nothing; not even love, hope, or faith, springs eternal. Neither does life. Thankfully, there is an expiration date for all of us. Emotions, hopes, and beliefs are, more frequently than not, faded at some point. To all appearances, our Central Bank deities are also impaired by this human weakness. The very same year the 1975’s have begun to sing about it, most Central Banker’s, discreetly and dispassionately, have, all of a sudden, had A change of heart. About time! As Unamuno (famous Spanish essayist) once stated, a man has the permanent right to contradict himself. Good to know that, because it might come in handy soon enough!

Following up on that sudden change of heart, please don’t make too much of it. It’s not an abandonment of their firm beliefs in Keynesian utopia, and it is circumscribed to some specific, but highly relevant, matters. Like…. Well, amazingly enough, it is related to the merits and efficacy of “nirping” and “printing” ourselves all the way to financial disaster.

Most Central Bankers had a nightmare this summer, and the Kalecki path to monetary destruction was clearly exposed to them in a dream. It was a MLK kind of dream, vivid and clear -they are now scared to death. Of late, I can see the fear in the whites of their eyes -as they inevitably question their deeply held faith that the Bernanke policy mix would save the world. Bad for them, but, I will concede, it comforts me deeply. Apparently, insanity, unlike stupidity, does have some limits after all.

Not that the dream couldn’t have come earlier. It was crystal clear to anybody who wanted to see what was going on. In fact, it took ages. To prove the assertion, I am reproducing three great charts, courtesy of Tad Rivelle at TCW, John Hussman, and Jeffrey Sneider. They all summarize what the FOMC members have done over the last 25+ years (Greenspan, Bernanke and Yellen tenure).091916-tradingsecrets-01

wmc160919aabook-sept-2016-inefficiency-net-worth-to-spendingTake your time working on them. It is their simplicity that makes them so valuable. They are further explained at TCW’s, Hussman’s, and Alhambra’s websites. It is pretty obvious that there is no way to leave this party unscathed. To add insult to injury, the amount of global leverage (next chart) puts us, worldwide, in absolute terms, well past the Minsky moment. Stability, as he said, generates instability, as Ponzi debt takes over productive debt. At some point, leverage goes past the amount of income needed to service the debt. Then, the credit boom stalls and asset markets and the economy crash. Negative interest rates postpone this, but at the cost of suppressing productivity increases -because Schumpeterian creative destruction comes to a standstill. Hyman P. Minsky was a visionary. He saw, decades ago, what reality is only confirming right now.leverageglobal-zh

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