Juggling Dynamite

As I have referenced in the past, what’s needed today is not an endless circuit of vapid speeches and tortured transcripts from central bankers posing as magicians, what’s needed is policy leaders with the courage to bring banking rates back up to rational levels so that savings can once more earn a reasonable yield, and self-destructive consumption and speculation on credit are reined in once more.  Yes, this is likely to accelerate an economic slow down and bear market in over-valued asset markets but as Paul Volcker realized in 1981, that’s part of the purging process required, and those things are coming naturally, in any event.  After 9 years of reflating through reckless debt at every level, we have earned the mean reversion cleanse coming.

Ironically, in the early 1980’s higher rates were needed to break the cycle of runaway consumption and inflation.  Today, higher rates are needed to help break the cycle of runaway speculation and economic stagnation.  Two ends of the spectrum, higher rates needed for both.  Treatments can be painful, even as they’re necessary. So far, the leaders at the largest central banks of the world, are showing cowardice and capture not leadership and independence.  No courage in sight yet.

Good piece on this from Stephen Roach this week, see  The Courage to Normalize Monetary Policy:

In the current period, the Fed has outlined a strategy that does not achieve balance-sheet normalization until 2022-2023 at the earliest – 2.5-3 times as long as the ill-designed campaign of the mid-2000s. In today’s frothy markets, that’s asking for trouble. In the interest of financial stability, there is a compelling argument for much speedier normalization – completing the task in as little as half the time the Fed is currently suggesting.

Independent central banks were not designed to win popularity contests. Paul Volcker knew that when he led the charge against raging inflation in the early 1980s. But the approach taken by his successors, Alan Greenspan and Ben Bernanke, was very different – allowing financial markets and an increasingly asset-dependent economy to take charge of the Fed. For Janet Yellen – or her successor – it will take courage to forge a different path. With more than $6 trillion of excess liquidity still sloshing around in global financial markets, that courage cannot be found soon enough.

Closed hearings, forced arbitration with corporate friendly adjudicators and secret settlements without admitting or denying fault, all are the cloak of deceit and abuse.

We must remember that after the reckless leverage and fraud that led to the financial crash of 1929 and the Great Depression for years thereafter,  it was not until the Senate Committee on Banking and Currency launched its 1932 inquiry into the causes of the crash, that chief counsel Ferdinand Pecora was able to subpoena and cross-examine bank heads and employees and get the story out to the public through the attending reporters.

It took Pecora’s public exposure of shocking practices to finally galvanize broad support for stricter regulations and a breaking apart of investment sales arms from deposit taking banks via the the Glass–Steagall Banking Act of 1933, the Securities Act of 1933, and the Securities Exchange Act of 1934.

The 2008 financial crisis should have launched a similar investigation and response, unfortunately the political will and public outrage fell short of demanding the changes needed.  The Consumer Financial Protection Bureau was a small step in the right direction, but in recent years, the domineering financial lobby has once more been rolling back support for regulation and accountability even in the face of a never-ending stream of brazen crimes.

Under President Trump’s request, the Fiduciary Duty rule that was to require financial advisors to put the best interests of their clients first, has been indefensibly shelved once more.  Apparently it will require another financial meltdown before public outrage may have another shot at demanding meaningful reform.

This press conference today reviewed some of the egregious abuses of late, and explained why and what, some Senators are doing to fight back against the financal cartel.  It’s worth listening.  It should make everyone mad.  We need people to be aware and outraged if anything is to get done.  Here is a direct video link.

This week, Senate Republican leaders are whipping to secure the votes to overturn a rule to protect consumers. And Senate Democrats, led by U.S. Senators Chuck Schumer (D-NY), Jack Reed (D-RI), Patrick Leahy (D-VT), Elizabeth Warren (D-MA), and Catherine Cortez Masto (D-NV), are standing up for consumers and service members by protecting Americans from the negative effects of forced arbitration clauses.

Danielle was a guest today on The Financial Survival Network with Kerry Lutz, talking about recent developments in the world economy and markets.  You can listen to an audio clip of the segment here.