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The Emporer is Indeed Naked

From Alberto Gallo, head of credit research at RBS, via this item at the Fiscal Times comes this handy guide to post-Great Recession monetary policy and its various effects.

How long will it take for this to become the mainstream view?

After the events of the last few days or so, perhaps sooner rather than later.

Panic on the Street

It looks like they’ll have plenty to talk about this week beyond the official topic of  Inflation Dynamics and Monetary Policy at the Federal Reserve’s annual gathering of the brain trust in Jackson Hole, WY, what with the sky being full of smoke from physical fires burning to the West and financial markets around the world figuratively going up in smoke.

What’s interesting about recent developments (if not surprising) is that China’s disappointing economy is being blamed for the market turmoil, prime evidence being the graphic below in this Wall Street Journal story today:

What gets short shrift from most media outlets (this Forbes piece by Steve Keen being the exception to the rule) is that we may be looking square in the face of yet another ugly unwind of yet another reckless expansion of credit and debt. Oh well…

China and the Fed

The Federal Reserve brain trust must be rolling their eyes at the latest market turmoil resulting from China’s currency devaluation – first Greece, now China.

Keen on notching that first rate increase in about a decade, lest they be accused of leaving rates “too low for too long” again amid more “Fed-bubble machine” accusations, they are now growing more fearful of repeating the European Central Bank’s 2011 error when they raised short-term rates on nascent signs of inflation, only to reverse course months later.

Here’s Art Cashin’s take on the situation:

There’s nothing worse than a central bank that makes a bad situation worse and the trade-off here is whether the Fed’s action or inaction results in a near-term market crash or bigger asset bubbles later. My guess is that it will be the former combination.

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China Acts

China’s relatively modest currency devaluation appears to be the top news story of the day and, so far, equity markets are not taking it well – here’s why they did it.

Precious metals investors, on the other hand, have embraced the news since, like the Swiss bank action to remove the euro-peg from the franc some time ago, it comes across as one more sign that the global currency regime has an expiration date.

The Yellen Term at 18 Months

The body-less images at about the 30-second mark notwithstanding, this is a pretty good recap from the folks at Marketwatch of how the current and former Federal Reserve Chairs have fared during their first year-and-a-half on the job.

Interestingly, there’s the potential for the Presidential election cycle, Fed chairman cycle, and financial crisis cycle to line up again at the eight year mark. Recall that Bernanke was appointed in 2006 and had smooth sailing for a while, then the election cycled heated up in 2007, and then the wheels fell off of nearly everything in 2008.

Interregnums are particularly good times for financial crises…

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