FIRE Economy | - Part 4

Yellen: “Not a bubble economy”

It’s hard (for someone like me at least) not to think that Ms. Yellen’s opening comments in the video below will come back to haunt her someday:

This is an economy on a solid course – not a bubble economy…

It could be right up there with Greenspan’s “irrational exuberance” comments back when they could have cooled the late-1990s internet/stock market bubble and, of course, Bernanke’s assurance that “troubles in the subprime sector on the broader housing market will be limited” (and not “limited to planet earth” as Jim Grant once quipped).

It doesn’t appear there are any similar offerings for Volcker.

Yellen and Global Uncertainty

Federal Reserve Chair Janet Yellen appears to have said everything that folks on Wall Street were wanting to hear yesterday as she basically green-lighted a little more asset price inflation at the cost of lower interest rates for just a little bit longer.

Like previous Fed chairs Bernanke and Greenspan, “too low for too long” is not really much of a concern. See also:

Unrelenting Oil Supply

They say a picture’s worth a thousand words and that axiom is demonstrated nicely by the blue bars in the chart below from this iMFdirect story about global oil supply.

As recently as 2014, OPEC nations seemed happy to reduce oil supply to support prices and, of course, back during the financial crisis, output was slashed before, during, and after the oil price bottomed out, but things are quite different now.

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CNBC reports that the Janet Yellen Fed has a “mini-revolt” brewing with a total of four Open Market Committee members favoring a more hawkish approach to monetary policy.

Of course, financial markets will have the last say on whether short-term interest rates are raised from their current freakishly low levels and, if so, how fast.

Markets seem to be giving the Fed the go-ahead at the moment, but, as we’ve seen over the last year or so, that could change rather quickly.

Germans in Zero Interest Rate Hell

If the photo below from this Handelsblatt story is any indication, the Germans don’t think much of ECB Chief Mario Draghi’s latest policy move where interest rates were pushed further into negative territory (from -0.3% to -0.4%) and the monthly money printing effort was increased by a third (from 60 billion euros to 80 billion euros).

To wit:

An emotionless Mario Draghi, the president of the European Central Bank, uttered nearly the same words residents of the 19-nation euro zone have been hearing for years.

The ECB’s cheap-money rescue has kept alive the euro, but the cure has been toxic for a nation of savers trapped in zero-interest hell.

Being half German and half Italian (an unusual pairing for the late-1940s/early-1950s) and being well versed in the differences between the two cultures (extreme), it’s clear to me that the only thing Germans liked about the excerpt above was the word “emotionless”.

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