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‘Like It Or Not, The Heyday Of Central Bank Independence Is Behind Us’: Pimco

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15 comments on “‘Like It Or Not, The Heyday Of Central Bank Independence Is Behind Us’: Pimco

  1. Over-reaction. Both in the sense of the degree to which the Fed has been “politically independent” –Volcker was the only truly independent Fed Chair. Second, DJT is not suddenly taking over the Fed. If he had been able to confirm Moore and Cain then we need to be worried. Shelton may not be confirmed. Waller is a “secular stagnation” guy whom Hillary Clinton could have easily nominated. Powell bashing is mostly political posturing in case the economy sours. Trumps base personifies. Powell is being cast as the villain who is trying to keep our Supreme Leader from doing us all the good he would like us to do. And if things go bad, it becomes an argument for investing the Supreme Leader with more power.

    • Anonymous

      I agree that Trump’s outbursts are political posturing, but his recent nominations of people who have publicly supported him show the dangers. What Trump and others overlook in his attacks on Powell is that the FOMC decision is a majority one, not just Powell’s.

  2. ShockedToFindGambling

    The world’s problem has been one Central Bank following another with QE. NIRP, ZIRP, etc., NOT political pressure.

    They have created a bubble several times bigger than 2008.

    You would think the Central Bankers could think of their own bad ideas, rather tan copying one another.

    Powell can do what he wants…….probably shouldn’t ease this month……. he just needs the fortitude to do it.

  3. When you break a system down and destroy it’s ability to function as intended this is what you get… Currently there is an incestuous relationship between Business , Central Government , and Central Banks that by intent is not easy to understand …It appears they all pee in the same pot though ,… also by intent….The cure may well be a top down take down as opposed to a more sedate bottom up take down..as this whole problem has morphed into an International scheme..Political Science as H….would imply….

  4. With respect, the first two comments are both off base. There has never been this much interference in US monetary policy. People continue to underestimate Trump. And it will never stop. If he fires Powell, people will say “Ok, well, but at least he’ll leave if he loses in 2020”. And then, when he refuses to leave, people will say “Oh, well, at least he can only serve two terms”. And on and on. That’s you end up with an Erdogan.

    On the second comment, I’ll just say this again: if central banks hadn’t stepped in in 2008, there would have been a depression. you cannot have a situation where giant multinationals are unable to access liquidity, etc. we were on the verge of that in September 2008. it’s easy for everyone to look back on it now and say “oh, central banks have ruined the world”. would you have rather the ATMs gone dark and the shelves at Walmart to have gone bare? of course not.

    contrary to the narrative perpetuated by “alternative” finance sites run, in many cases, by people with no post-graduate education and “careers” that crashed and burned, PhD economists are not morons.

    • Also, I would ask this hypothetical question: What would have happened if Trump had just said “No, Stephen Moore is on the Fed board now. Starting tomorrow.”?

      You’ll invariably say, “Well, he can’t do that.” But why not? The Supreme Court just said he couldn’t add the census question and he just flat out said he’s going to move ahead with trying to do it anyway.

      Did you guys/gals happen to read the emergency conference call between the judge and the DoJ attorney on the census thing?

      This is the craziest thing you’ll ever read: https://www.documentcloud.org/documents/6182391-July-3-2019-Transcript-of-Hearing-Before-U-S.html

      It underscores one important point: While everyone is probably correct to say that there would be a breaking point beyond which Congress and the courts would say “Enough”, but it’s not a guarantee. And he’s going to keep testing these institutions. The simple fact of the matter is that they have, at the very least, proven to be flimsier than anyone thought.

      • H

        While some readers may feel you are overreacting when you lay out the “What happens if he does it anyway” question, there is no great answer. Who will enforce the law if Trump breaks it? No, really, who? He just put the army in his pocket, he’s in outright defiance of the Supreme Court (that has no army) and making a mockery of the Congress (with lots of help from the “distinguished” senior senator from Kentucky, good old Mitch boy). Trump once said he could step out on Fifth Avenue in NYC and shoot someone dead and no one could touch him. You all thought he was kidding.

        • yeah, and I mean, bear in mind: i’m not trying to be an alarmist. i’m just asking a question that needs to be asked again and again because, so far, nobody appears to have an answer. everyone just keeps begging the question by referring to the same institutions that trump continues to run roughshod over when explaining who will keep him in check.

  5. I get that this a real possibility- that T wouldn’t leave if he is not re-elected- but the question really is “is there anything we can do about it?”

  6. As one who was running institutional portfolios in 2008 and watching the markets implode from the inside, I am convinced that if not for the Fed, Treasury, and White House/Congress emergency actions then, the US and world would have tumbled into a depression.

    Granted, those same entities were also largely responsible for the bubble that was then blowing up. But give them some credit for effective emergency measures in the crisis.

    In the following ten years, we’ve seen the Fed and other central banks forced to do “whatever it takes” to keep a febrile recovery going, because the fiscal and regulatory tools were being misused by the other branches of government. Monetary policy has its limits and we’re seeing them.

    This leaves the US woefully unprepared for the next recession. Interest rates are already very low. The federal deficit is already well over $1TR annually. The private sector’s debt load is very high. Consumers’ ability to withstand financial shock is still weak and social safety nets thinner than ever. The executive branch and agencies are headed by the least qualified persons I could imagine. Congress is riven with paralyzing divisions. Ugh.

  7. Little bit of reminisencing here. 2008 and first months of 2009 were the most frightening time of my professional life – and I was also on the institutional side in 1999/2000. Typical institutional product, required to be fully invested, we were working around the clock trying to survive. The quant shops were getting killed, we’d pull up their holding lists and screen for the most liquid holdings to identify the next blowups. Shops were being forced to sell anything they could still sell. As were we. During the XMas holiday in 2008 I was working late, morbidly researching valuations during the Great Depression. We realized that the one industry that was still comparable to then, retail, was trading at valuations below 1933 levels. Took two months to decide we weren’t going into a depression. In March 2009 we dumped all our defensive names and bought the lowest quality, most levered, most distressed stocks we could find. We only bought stuff that we figured was going to double in 6 months. F at $1 etc. We were a small cap fund but F was a small cap… 2009/2010 was then the most exciting period of my professional life.

    I don’t think we’re in for a repeat of that – but I didn’t expect 2008 to be as bad as it was either. Learned a lot of lessons then.

    But it’s been a decade. Lots of folks now in the investment biz started after that period and have never known anything but low vol uptrend dip-buying.

  8. Harvey Darrow Cotton

    Thank God for T.A.R.P., money printing, reflation, bailouts, free cash injections to banks, subsidized Wall Street bonuses, and the incentive structures put in to foreclose on homes.

    There were literally, and I am literally being literal here, precisely zero other policy options available at the time and otherwise we would have had to hunt feral cats for food.

    Not only were the policies wise at the time, they are wise in hindsight, and the T.E.A. Party movements, right-wing populism, debt and deficits, income inequality, asset inflation, suppressed wages, unaffordable housing, politicized Central Banks, ingrained moral hazards, larger totally stress-free banks, and current dystopian hellscape dominated by criminal, ever larger Wall Street enterprises prove it was all worth it.

    • Harvey Darrow Cotton

      You can tell how awesome the current system is that eleven years later, despite a four trillion dollar Federal Reserve balance sheet, tax cuts, financial deregulation, capital injections, legalized fraud and money laundering, trillion dollar Federal deficits, flat wages, record high stock markets, historically low interest rates, and a growing domestic and global economy – we are a 0.25% rate increase away from a stock market crash, credit squeeze, and liquidity freeze. Just another eleven more years of accommodation…

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