TSP & Vanguard Smart Investor’s guest writer Doug Noland writes on Issues for 2020
To summarize the 2019 policy backdrop in one word: capitulation. It was to be a year of monetary policy normalization. The new Fed chairman was to finally return policy rates to a more reasonable level. In 2019, the odds central bankers would ever actually tighten monetary conditions became exceedingly low.
… was the Great Depression chiefly the consequence of post-crash policy mistakes, as conventional thinking has come to profess? Or did the previous “Roaring Twenties” Bubble sow the seeds of a major down-cycle and collapse?
We won’t know all the crazy leverage and derivative strategies spawned during this period until the next big de-risking/deleveraging period
From a conventional “financial stability” standpoint, this Credit cycle may appear virtually pristine. Yet Credit Bubbles survive only with unrelenting debt growth. Today’s mirage of “financial stability” depends on ongoing massive federal deficits coupled with aggressive monetary stimulus.
First time all four developed countries have been negative year-over-year since last two global recessions.
It was no coincidence that U.S. “repo” market tumult followed on the heels of an abrupt reversal in global bond yields. I appreciate how the enormous global buildup in leveraged speculation works miraculously so long as bond yields are declining (bond prices rising). If only bond yields could fall forever – even as debt and deficits expand uncontrollably. It’s not clear to me how the global system doesn’t turn increasingly unstable, which I believe explains why the ECB and now the Fed have resorted again to QE.
This was the second strongest (22-week) monetary expansion in U.S. history, trailing only 2011’s “QE2” period…
This year we are seeing more underlying turmoil in the global financial markets. The Fed and media talking heads are telling us the markets need more financial reserves ignoring the trillions that are supposedly in them already. No, I think Doug Noland has it right – “The issue is not a shortage of reserves but a gross excess of speculative leverage.”
Tread careful this Fall. Sometimes those Autumn fires get out of control.
The notion that the Federal Reserve would not respond to declining stock prices – under any circumstance – has become heresy. Where was the outrage when Bill Dudley (while at Goldman Sachs) and others specifically called for the Fed to adopt policies to spur mortgage Credit expansion for the purpose of systemic reflation after the collapse of the “tech” Bubble?