Fed Policy Magnifies Risks for the Global Economy As Well As At Home

The risks step up...

I don't know if there will be a contraction this time around,  but if policy does not swerve, conditions will get more dangerous. The Fed should at least be pursuing a Mini-Max strategy, guarding against making the biggest mistake instead of dogmatically pursuing  a course of action that it has no idea if it is correct. (tighten because we are already on the golden path to 2% inflation and full employment...Amen.) Fed policy is magnifying economic risks. Usually we do not think of that as the Fed's job...

I'm not sure if the Fed got that policy on stone tablets from Mosses, but they act like it. Maybe someone named Mosses was stoned and gave it to them? That seems more likely.  The policy looks more like a golden calf they are worshiping than something handed down by an agent of God...   

Fed policy is focused on the labor market. Really? ...a lagging or coincident variable at best. And it seems to put that market on a pedestal to the exclusion of all else. Really? Does the puny US job market trump the global surplus? How is that possible? A market consisting largely of services-workers insulated partially from international competition will call the shots. I don't think so.  

This is high risk high stakes double or nothing all chips in the middle policy. There is nothing prudent here. And yes I am talking about central bank policy. Staying the policy course with the economy and market as rattled as they are is dangerous at a time that downturn is the most dangerous thing that could happen to this economy.   

Yes, I am worried. I do not think stock markets are irrational. The BOJ move to negative rates that left the yen STRONGER (OOPS!) has shocked everyone. Now markets see that central bankers do not have rabbits to pull our of hats. Maybe they don't even have hats. Maybe they reach in and grab a rattlesnake by the tail instead. These policies are risky. 

No one speaks of it this way but these are the financial (policy) innovations that are the  equivalent of the hybridized mortgage products that caused the blow-ups the last downturn. (Did you see THE BIG SHORT??) 

These are policies that are untested using tools that are untried. What's worse is that they are untested in any business cycle and yet there they are being put in use as though they are understood. And by CENTRAL BANKERS!!! Oh Yeah! 

Just like any other rate cut so what if it winds up below zero....?? (the culinary equivalent of 'tastes just like chicken!!- but is it nutritionally? ) These policies may not be successful. Or might make things worse. Its like an alien space ship landed and we are going to begin randomly to press buttons. HMMM is this one to take-off or is it for the death ray??? Just press, it...everything will be fine. 

And so the central bankers are running out of things to do, things to try and, of course, running out of things they really understand, nothing is safe anymore. And now markets know it... NO more putting a brave face on. The over-sized shoes and the seltzer bottle are on full display along with the red noses - Bozos one and all.      

The oil market is a mess and out of control. With fracking and technology, supply has found a way and you can't put that toothpaste back in the tube. The Saudis long knew their role in OPEC as they have oil for the long run: it was to contain oil prices and keep innovation at bay. They blew it. They just blew it. Oil now is a loose cannon of excesses. 

China is in a terrible debt overload and has a difficult policy switch to accomplish. Everyone who can wants to leave China because of the environmental disasters policy has made. Money is just gushing out like someone cut a monetary artery on Grey's anatomy. Clamp! I said CLAMP! What? No Clamp??? Dang...

When Stevie-baby Roach said they knew what they were doing in China he was just blowing smoke up all our.. well hind-quarters... He was Morgan Stanley's shill for China (non-executive Vice Chairman- what a title). No one stood up to the Chinese. Stevie cheered them on and encouraged all of us to trust them and to invest there. Thanks for that Stevie!  So now they have this mess and we have a mess too. 

The South China Sea Gambit is just a natural result of failed domestic policy in China. It is text book foreign policy diversion.  Create an international event to bring the people together behind you. China wants conflict in the South China Sea. It will not settle anything. It wants an 'event.'

and on it goes...   

Don't you think?

Obama's giving Bernanke the Bum's rush out if office to replace him with Yellen looks more and more like a fool's move. Listen to what Ben is saying these days- he does not think we are on 'The Path'. This is not The Matrix. 'The Path' is not the same as 'The One'. Yellen does  not have the judgement of the Matrix's Lawrence Fishburne. The Fed is stabbing in the dark. As the knight in the room of chalices in the movie 'India Jones and the last Crusade' said  she  has not chosen wisely...

No lie... 

Janet!!!

Janet, time to choose wisely. Time to stop really blowing it. You need to stand up to the hawks. You need to change your mind. You need to stop sleep-walking.  You need to drop the Fed-speak and deal with issues. You need to look at all the data not just the stuff that makes you comfortable... You need to make policy to protect the economy from the Fed making the worst mistake possible... Terrible testimonies. Clumsy Q&A answers. Stop with the bureaucratic babble and Fed-speak. Speak English! Address issues. Throw some FOMC members pressuring you to hike rates under the bus. Do it now. Just DO IT. Maybe Nike will sponsor you...