2017-10-24

Political Economics: Technocracy, President Trump, and the Next Fed Chair

The MacroView from Three Perspectives:
Hawks and Doves: The Five Fed Chair Candidates. On Oct 23, 2017, President Trump said he was 
"very very close" to a decision on who would be the next Chair of The Federal Reserve.
1. Next Fed Chair (videos)
Powell Is a Force at the Federal Reserve, Says Wallace

Bloomberg.com video published Oct 23, 2017: Kim Wallace, head of Washington policy at Renaissance Macro Research (domain: renmac.com), examines the leading contenders to be Federal Reserve Chairman and the warning from Billionaire Ray Dalio for the Fed to watch a U.S. economic divide. He speaks on "Bloomberg Markets" on October 23rd.

DomainMondo.com's prediction: Trump will pick Powell to be Fed Chair. Trump's Treasury Secretary Steven Mnuchin has reportedly recommended Powell privately to Trump.

A Powell, Taylor Fed Hawkish to Markets, Says Zentner

Bloomberg.com video above published Oct 23, 2017: Ellen Zentner, chief U.S. economist at Morgan Stanley and Steve Barrow, head of FX strategy at Standard Bank, examine what a combination of John Taylor and Jerome Powell on the Federal Reserve could mean to markets. They speak on "Bloomberg Daybreak: Americas."

What's at stake?
"Whereas Janet Yellen, Bernanke’s successor, ended the Fed’s Q.E. program in 2014, the European Central Bank Chairman Mario Draghi’s version of it is still going, which has led to the “manipulation” that so concerns Jeffrey Gundlach. European interest rates “should be much higher than they are today,” Gundlach has said, “. . . [and] once Draghi realizes this, the order of the financial system will be turned upside down and it won’t be a good thing. It will mean the liquidity that has been pumping up the markets will be drying up in 2018 . . . Things go down. We’ve been in an artificially inflated market for stocks and bonds largely around the world.”"
2. Political Economics by Jeffrey P. Snider | AlhambraPartners.com 20 Oct 2017, excerpt: "Who President Trump ultimately picks as the next Federal Reserve Chairman doesn’t really matter. Unless he goes really far afield to someone totally unexpected, whoever that person will be will be largely more of the same .... Trump’s candidacy, as Bernie Sanders’, as an ideal was a grave threat to the status quo because it started with the premise that, no, this isn’t as good as it can be and that we need to look for real solutions. Whether he forwards that ideal as President is and has been another matter, and who he picks as Fed Chair might be some small indication of where he currently stands consistent with that idea, or perhaps having second thoughts about it. The technocracy doesn’t work because it isn’t technically competent (thus 2008).

"That’s the real political debate in 2017 and going forward; technical incompetence where the defense of the technocracy refuses to even allow the suggestion that this might be true. I go back to Weimar Germany not because I expect a global hyperinflationary breakdown, but in how that one particular form of systemic breakdown exposed timeless flaws inherent in all economic and financial systems. They all run to some extent on trust and (good) faith:
"In other words, German monetary officials, particularly Reichsbank head Rudolf von Havenstein and Minister of Finance Karl Helfferich, denied that Germany had an inflation problem at all – right up until the end. Minister Helfferich declared that Germany had better gold coverage after the war than before it, despite that more than quadrupling of currency volume. One economics professor, Julius Wolf, wrote in 1922 that, “in proportion to the need, less money circulates in Germany now than before the war.”
"As much as the easy-to-see Versailles excuse played a part, there can be no doubt that beyond 1921 the German people themselves began to recognize that authorities had no idea what they were doing; worse, they came to see that even though policymakers were inept and incompetent, officials themselves would never admit as much and thus nothing would prevent Germany from its fate. That awakening meant an increase in danger that French occupation could never have unleashed on its own."
Hat Tip: ZeroHedge.com

3. QT: Quantitative Tightening and the Fed:
Investors Ignore What May Be The Biggest Policy Error In History | Mauldin Economics (excerpt):
"... The chart ... shows the growing uncertainty over the future direction of monetary policy, is both terrifying and enlightening. The Federal Reserve, and indeed the ECB and the Bank of Japan, went to great lengths to assure us that the massive amounts of QE that they pushed into the market would help turn the markets and the economy around. Now they are telling us that as they take that money back off the table, they will have no effect on the markets. And all the data that I just presented above tells us that investors are simply shrugging their shoulders at what is roughly called “quantitative tightening,” or QT. I simply don't buy the notion that QE could have had such an effect on the markets and housing prices while QT will have no impact at all. In the 1930s, the Federal Reserve grew its balance sheet significantly. Then they simply left it alone, the economy grew, and the balance sheet became a nonfactor in the following decades. I don’t know why today’s Fed couldn’t do the same thing. There really is no inflation to speak of, except asset price inflation, and nobody really worries about that. We all want our stocks and home prices to go up, so there’s no real reason for the central bank to lean against inflationary fears; and raising rates and doing QT at the same time seems to me to be taking a little more risk than necessary. And they’re doing it in the midst of the greatest bull market in complacency to emerge in my lifetime. Do they think that taking literally trillions of dollars off their balance sheet over the next few years is not going to have a reverse effect on asset prices? Or at least some effect? Is it really worth the risk?..."

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