Carney & Bernanke neutered – next stop, Draghi
Gold jumped the best part of $65 on the markets later yesterday. It’s still rising overnight, and stands at $1366. The Golden calf has done so many yo-yos this year, it’s beginning to look more like a tarnished old heifer. The logical conclusion (were we to find ourselves in a logical world) would be that Uncle Ben’s Mice emerged yesterday to say the tapering part of QE will be retained, up to but not entirely including any tapering as such. Also, of course, as Larry Summers turned chicken on the Bernanke job, the Yellen woman looks like a shoe-in. And she is not the tapering kind. Ergo, as currency about to be devalued still more, and debt still rising, gold is a buy. Right?
I think gold was a buy yesterday for about four hours either side of the reserved Federal announcement. But as I said a month ago, the metal is still due another downgrade. The central bankers and sovereigns still need it to be cheap. And the way the world works today, any event – however “unfortunate” for the illusionists – can be turned to their advantage. So, the market sh*ts bricks about QE tapering and Booming America isn’t doing any booming after all, having lost 347,000 jobs somewhere over the last two months. Get on that podium Benny and postpone the taper: get that gold price up, sucker them in, sell bigtime, watch the price plummet below $1000, then buy big. Might is Right, manipulation is right, stealing is right, lying is right. Until September 23rd, when the Krauterin gets her ass reelected: then we can get properly down to business once again.
At that point, the real issues can be faced, allegedly: at that point, you can be sure, the markets will revert to type.
China is still slowing down and riven by politburo infighting; Spanish banks are emptier than a purse on payday morning; Italy’s finances cannot be hidden for much longer, and Silvio Cornetto is holding the political system to ransom; Greece is falling further behind on the payments and will need another bailout by Spring 2014; the eurozone economy is a large sum short of a capitalisation; the French numbers don’t get any better; and the eurobanks remain what they were in 2008: black holes of bad debt and big fibs.
None of this will be faced by the Sovereigns. Instead, we shall witness more moving of the face to one side or another, in order to turn the blind eye. More corners will be turned, patients declared healed, green shoots seen, and recoveries predicted. But examine the situation in detail, and things are no longer going the manipulators’ way.
There are in fact two sets of manipulators – the central bank/Treasury/politico axis of smoke-filled, mirrored rooms, and the the Big Dick private sector guys. Occasionally, the two work in concert – mutual interests and all that. More often, however, greed overcomes good sense and the fixes break down. Private cheats are happy Larries so long as the punter is getting screwed with no comeback on them. But when Public Cheats start to remove the mugs’ money, the markets get nervous. When the public cheats turn off the taxpayer bailout tap, they get irritated. And when Zirp starts to work against them, they get mean.
This is what’s happening now. Most observers missed it yesterday, but the Bank of England boss Mark Carney’s strategy is in tatters. Given that he has argued persistently that there is enough slack in capacity for the Bank and the Government to stimulate the economy without stoking inflation, clearly he doesn’t have control of the MPC (which voted to drop the QE3 idea earlier this week) and despite his attempts to get the Pound cheaper, it’s being bought big at the expense of the euro. People – ie, movers and shakers – are returning to the fundamentals, and may be actually starting to drive them again: right lads – holidays over, back at your desks…let’s start saving our own backsides and let Draghi & Co go f**k themselves.
Call me wacky, I also see Carney and Osborne diverging already. The BoE’s canny Canuck told the Treasury Select Committee the Bank remains “vigilant” over a house price bubble, as prices and demand are pumped up by Government stimulus schemes. It could recommend banks set limits on how much households can borrow, he said….a poke in the eye for the chancellor, that one. He has also studiously avoided making any comment at all on the Lloyds Bank deal, but that too has strengthened Sterling in the light of quite incredible levels of bollocks put out about its ‘success’.
So it’s Fred Karno’s for Mark Carney at the minute. He doesn’t look like a man happy in his work.
On a much bigger canvas, the fundamentals are also beginning to pop the inflated condoms being floated everywhere on the subject of jobs and demand in the US. Labour experts there are now openly opining that it is chronic lack of demand that’s got the economy stuck in the mud of pauperisation. The Slog has been asking for two years how an economy based on quantitative consumption can recover when the consumers have 30% less money than they did in 2005, and the percentage of Americans on food stamps has doubled. Well, now we know: it can’t. Once again, neoliberal economics are seen for what they are: a crock of old toss.
But this above all is where push meets shove – where the public and private sectors are doomed to be increasingly at loggerheads. For I suspect that Ben the Banker knows perfectly well that medium-term rising bond rates make QE unaffordable beyond a certain level. I would go further: they render US debt maintenance impossible after a certain level. A paper by former Fed governor Frederic Mishkin entitled Crunch Time warns that the Federal Reserve will struggle to extract itself from QE if it delays until 2014, and could drown in losses on its $3.6 trillion of bond holdings as yields rise. This too I have posted about before.
Now put this potentially immovable object in the path of the unstoppable force of Wall Street greed. Twice thus far, the markets have flexed their muscles and forced Bernanke to up his prescription painkiller dosage. Here too, Ben has flunked it because the world cannot afford a stock market collapse that causes a Bond yield spike: but he has passed the parcel back to Congress, who will of course flunk the rising debt clampdown…and thus cause a Bond yield spike. Heads they win, tails we lose.
The markets are indeed, at long last, deciding. Bernanke has been in a corner for some time, but he’s already painting his shoes red. As he gets up to the trouser-knees, impending disaster will become obvious.